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#2097365 - 09/08/16 01:23 AM
Re: Cashout to Construct a Dwelling
CRL
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Platinum Poster
Joined: Sep 2003
Posts: 574
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I think the rates were better on our 3/1 ARM. He's a long time great customer, we do have construction loans to him, but this one he requested as cashout on his F&C rental, probably since he's building it to keep rather than sell. Yeah, I know, term not really matching loan purpose. Which is why I'm hesitant to call it a construction loan, as we're handing him a check, he can do with it as he wishes, choose to pay us off when he finishes the other and gets perm financing, or keep the funds for another project.
But I did just re-read BCC's Temporary Financing article, which makes it sound like if loan purpose is construction, it could/should be exempt, regardless of the loan term?
Last edited by CRL; 09/08/16 01:31 AM.
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#2097368 - 09/08/16 01:44 AM
Re: Cashout to Construct a Dwelling
CRL
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Platinum Poster
Joined: Sep 2003
Posts: 574
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Thank you David, so the key here is the borrower telling us he's going to pay off the loan when he finishes construction and gets stabilized rents. So if he requested the same loan with the same collateral and loan purpose, we agreed to fund, and he did not mention that he planned to pay us off, (perhaps he is fine with the terms of our loan as a cashflowing/debt serviced rental and he decides to leave the new property free and clear). So in that case, loan purpose is construction of a dwelling, but we'd call it a purchase for HMDA, correct? Because in that case, there would not be another loan, so HMDA-wise, it's only being reported once?
Last edited by CRL; 09/08/16 01:46 AM.
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#2097524 - 09/08/16 06:22 PM
Re: Cashout to Construct a Dwelling
CRL
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Member
Joined: Mar 2013
Posts: 67
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Might you be confusing a statement of the applicant used to report the purpose of the proceeds with the statement of the applicant for payoff resources? *Paragraph 4(a)(3) 1.Purpose—statement of applicant. An institution may rely on the oral or written statement of an applicant regarding the proposed use of loan proceeds. For example, a lender could use a check-box, or a purpose line, on a loan application to determine whether or not the applicant intends to use loan proceeds for home improvement purposes.*
FAQ's When is a loan "temporary financing" such that it is exempt from reporting? Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).
It doesn't sound like you closed a construction-only loan, nor a loan that was designed to be replaced by permanent financing of a much longer term. I can't see using a temporary financing exemption on this one.
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