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#2077715 - 05/09/16 07:31 PM NOO to Owner Occupied modification
Moman Offline
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WA
We have a mortgage loan that was originally made to finance a non-owner-occupied residence. The owner, several years later, moved into the property. The loan has a balloon, and the borrower wants a short-term extension; they plan to sell the home in the next few months. We are on a fixed-rate loan that was not disclosed up-front, and the borrower has requested a short term fixed rate (at a different rate) extension. The question is whether to disclose or not on the loan; no new funds will be advanced.

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#2077718 - 05/09/16 07:36 PM Re: NOO to Owner Occupied modification Moman
rlcarey Offline
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6. Business credit later refinanced. Business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.
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#2077723 - 05/09/16 07:50 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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If you are doing an actual modification and not re-writing the debt, you should be able to do what you want (extend the maturity) without creating a refinance.
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#2077742 - 05/09/16 08:33 PM Re: NOO to Owner Occupied modification Moman
Moman Offline
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As usual, y'all are the best. Thx much.

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#2077784 - 05/10/16 01:11 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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I didn't think the use of the collateral changed the purpose of the loan. For example if a customer refinances a consumer purpose mortgage with no new money the purpose is still consumer even though the property is now being rented. Also if a loan secured by the customer's primary residence used for their business is later refinanced with no new money it is still business purpose.

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#2077972 - 05/10/16 08:41 PM Re: NOO to Owner Occupied modification Moman
rlcarey Offline
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For example if a customer refinances a consumer purpose mortgage with no new money the purpose is still consumer even though the property is now being rented.

Why. Rental property is excluded from Regulation Z coverage???
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#2077982 - 05/10/16 08:58 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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Loans to acquire, improve, or maintain rental property are exclude not loans to refinance consumer debt. If a customer gets a loan to go on vacation secured by rental property it would be consumer covered under Reg Z. Collateral does not determine coverage.

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#2077988 - 05/10/16 09:13 PM Re: NOO to Owner Occupied modification Moman
rlcarey Offline
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If they are refinancing a current mortgage on a house that is now rental property, it is no longer a consumer purpose loan unless they are taking out additional money for consumer purposes. They are refinancing the mortgage on a rental property. They are not refinancing the original consumer debt..
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#2078025 - 05/11/16 12:42 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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So if a borrower obtained a loan secured by rental property to go vacation and later refinanced this debt with no cash out the refinance would be business purpose?

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#2078027 - 05/11/16 12:49 PM Re: NOO to Owner Occupied modification Moman
rlcarey Offline
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Are they not refinancing the rental property? I guess if you were the original creditor, you could make the call that it was still covered, but I think that is going above and beyond the call of duty.
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#2078030 - 05/11/16 12:56 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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The above example is why mixing purposes is such a bad idea. It should be outlawed. laugh!

terps...the bigger issue in what you stated in post 2077784 is the opposite effect and less dangerous scenario. If Moman chooses to refinance this home which used to be rental, but now is a primary residence...it most certainly changes the purpose from business to consumer. You should also give ROR at that point. wink
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#2078031 - 05/11/16 01:00 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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They are refinancing consumer purpose debt secured by rental property. I guess I always thought that collateral played no role but I am far from the expert. Thanks for the insight.

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#2078032 - 05/11/16 01:02 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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I have seen SBA loans take a lien on a primary residence. If these SBA loans were refinanced would they now be consumer purpose?

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#2078039 - 05/11/16 01:25 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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Not necessarily. You have to look at where the majority of the debt's purpose lies. Usually, SBA takes a subordinate lien...that loan and it's purpose stands alone. So, if Farmer Brown has a home and a mortgage that is personal debt. If the SBA holds a junior lien on that residence for Farmer Browns produce market, that debt is business purpose. However, if Farmer Brown later wanted to combine those debts into one neat payment, you would then need to look at where the majority lies. Consumer or Business in nature.

And I'm confused where the collateral is coming into play. The purpose we speak to, is the purpose of the money tied to that collateral. Just because a property was once rental (business purpose) doesn't mean the purpose will always remain that way. So, if the consumer moves into the home, by default, the purpose of those funds is now changed to personal...it's no longer a business debt...it's no longer income producing property and their personal income will be repaying the remaining debt.
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#2078057 - 05/11/16 01:57 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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If the loan is to payoff business debt should it not be a business loan regardless of what the collateral is?

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#2078059 - 05/11/16 01:59 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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What if farmer brown just wanted to refinance the SBA subordinate lien with no cash out?

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#2078096 - 05/11/16 03:13 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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If farmer brown refi's an SBA loan, it's still commercial debt.

In your rental to Primary Residence scenario, it's no longer business debt. He uses the home for personal use, not business. So, if you refinance it, you now have a consumer purpose...you also have 'new money' tied to a Primary Residence because the purpose of that money changed...which additionally kicks in ROR on that first refinance even though, technically, there may be no 'new money'.
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#2078102 - 05/11/16 03:29 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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But the farmer brown example the home is used for personal use.

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#2078104 - 05/11/16 03:43 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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The SBA loan is a commercial debt [secured by his PR]. Otherwise, it wouldn't be an SBA loan and so long as it is, chances are it will always maintain a commercial purpose. That money is commercial purpose. A couple of ways you 'might' ever re-write that debt outside of SBA is if 1) the business goes under and is later re-written as personal debt because their source of repayment has become personal income and 2) they combine the consumer mortgage and the business debt and the consumer debt outweighs the business debt.
Last edited by RR Joker; 05/11/16 03:46 PM. Reason: expanded for clarity
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#2078121 - 05/11/16 04:31 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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Why would that logic not apply to commercial debt other than an SBA loan secured by the borrower's primary residence?

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#2078148 - 05/11/16 05:35 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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It would.
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#2078170 - 05/11/16 06:22 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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I guess I am confused on how this is not the same as the original question. The customer is refinancing the commercial debt regardless of what the collateral is now used for. Now if they are getting cash out for consumer purpose then I can see that this is refinancing business debt into consumer debt.

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#2078176 - 05/11/16 06:28 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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It's no longer rental property. It no longer gets that exemption. It's now money tied to a consumer purpose...personal, family, household. This is a new request, to refinance debt originally for business purpose. The purpose is no longer business. The property is no longer rental property. It is 'new money' for the purpose of determining 'purpose'.

Now, if you were to modify or whatever and not extinguish the prior note/debt...then you don't have a full refinance and the outcome would/could be different.

Most folks get a better rate on consumer loans so most folks wouldn't want to do that unless there were offsetting cost savings.
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#2078180 - 05/11/16 06:37 PM Re: NOO to Owner Occupied modification Moman
terpsfan Offline
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So if you get a commercial loan secured by a primary dwelling it remains commercial if you refinance it but if you get a commercial loan secured by a rental property and refinance it after the use of the collateral changes to be the primary dwelling it is now consumer? I apologize for the multiple responses but I am very confused and I appreciate your assistance.

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#2078189 - 05/11/16 06:53 PM Re: NOO to Owner Occupied modification Moman
RR Joker Offline
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It IS confusing!

If I get a commercial loan secured by my PR, it remains commercial for ever unless something unforeseen happens...such as my business goes belly up and I have to repay from my personal funds. At that point (first refinance after change), it becomes consumer debt now.

If I get a loan to buy a rental house and rent it for 2 years, no matter how many times I refinance the original debt, it's business purpose. However, if I quit renting it and move into it...that remaining debt takes on a consumer purpose. I can no longer consider that business-purpose and when the debt matures [think balloon note] or if I refinance for whatever other reason not related to business purpose in majority, it becomes consumer purpose because it's my personal residence not otherwise related to a legitimate business purpose.

Think about it this way. Do you think they could claim the interest paid as business expense from that point on? I think not. smile The other side of THAT coin would be once refi'd into consumer debt [or maybe from the point they move into it, I'm not entirely sure on that!]...they could claim the interest on personal income itemization. smirk

Perhaps that POV will help you see the light?
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