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#2105207 - 10/28/16 09:09 PM Comm'l Purp on SM Loans with Consumer Disclosures?
Banker K, CRCM Offline
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Oklahoma
Hello - our Secondary Market area treats all of their files as "consumer" and therefore gives consumer disclosures, even if the customer's purpose relates to an investment property.

In-house, these would be coded commercial purpose and exempt from consumer disclosures, so in 2018, in-house would report these on the LAR with a "business or commercial purpose".

How should we handle for those files secured by investment property for the Secondary Market loans? Would they too be "business or commercial purpose" even though they are giving consumer disclosures?

Thank you.
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#2105213 - 10/28/16 09:27 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Kathleen O. Blanchard Offline

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Are they doing this because of investor requirements?
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#2105214 - 10/28/16 09:29 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
Yes ma'am.
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#2105215 - 10/28/16 09:39 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Kathleen O. Blanchard Offline

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If they treat it as consumer purpose you can't really flag it as business purpose because that affects the responses on the LAR. It is one or the other. So if that is what they do, it is a consumer purpose loan.
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#2105436 - 11/01/16 03:31 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
Thank you.
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#2153665 - 11/15/17 04:47 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
cgorham Offline
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Sorry to necro this thread, but I'm finding very little on the topic that relates to this situation..

We are in the same boat as Banker K's Secondary area. We consider all applications to be consumer purpose. We use the LE/CD on all transactions even if they could technically meet the business purpose exemption. This is done due to investor requirements and efficiency even though providing unnecessary disclosures creates some additional risk. The CFPB permits this and it has never caused any issues so changing this stance is not really an option. All of our loans would be considered purchease/refi/HI so it does not have any effect on them being exempt from HMDA.

I really want to agree with Kathleen and say we just report all of these as consumer purpose for that data point and report all of the data points related to the TRID disclosures, but does anyone have anything to support that stance? It seems logical, but we all know that doesn't always matter. Due to the edits, the only other option I can see is to report them as business purpose when applicable and report NA for all of the TRID data points even though we disclosed those amounts on the the LE/CD.

The only thing I can really come up with to support this is that the official interpretation to §1003.4(a)(3) says it "requires a financial institution to identify whether the covered loan is, or the application is for a covered loan that will be, made primarily for a business or commercial purpose", and I guess we can argue that we identify them all as consumer purpose by using the LE/CD.

My concern is that the interpretation to §1026.3(a) says that "the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt." Which I interpret to mean, just because we use the disclosures does not mean the loan was not exempt from using them due to the business purpose.

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#2153708 - 11/15/17 06:00 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Providing consumer disclosures to a business purpose loan does not make that loan a consumer purpose loan.

The 1008 identifies these as investment properties and our flow sheet documents the purpose of the loan. If the loan's purpose is for a consumer purpose we disclose and identify as such. If the purpose is business we identify as business. We will continue to do so after 1/1/2018 and we will not report any TRID data points for those loans exempt from Reg. Z.

providing unnecessary disclosures creates some additional risk

Providing the TRID disclosures to a business purpose loan does not subject that loan to TRID and its tolerances. How you have to deal with your investor is a different story.
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#2153714 - 11/15/17 07:29 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Adam Witmer Offline
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FWIW, I agree with Dan. If its not subject to Reg Z - regardless of whether you provided TRID disclosures - I would not report fields only required for loans subject to Z.
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#2153737 - 11/15/17 07:58 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Moman Offline
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WA
I remember years ago that we tried to sell a couple rental property loans to one of the big banks on the secondary market shortly after establishing the relationship. They required a TILA disclosure for each one. We didn't provide those, so we lost a few sales on those loans until we started doing so. I called their Compliance group, and they refused to budge. I suspected that they had probably gotten stung on a few consumer purpose loans hiding in business purpose rental home loans.

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#2155372 - 11/29/17 08:55 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
Just confirming agreement here...

Our Secondary Market (SM) provides TRID disclosures on COMMERCIAL PURPOSE loans.
We have discussed read the purpose determination guidance from Reg C, and agree we will appropriately report on our LAR as commercial purpose, even though they are issuing TRID disclosures.

To that effect (?), on the fields that directly relate to TRID-applicable loans (ex: Total Loan Costs, Origination Charges, Discount Points), EVEN THOUGH THEY ARE PROVIDING TRID DISCLOSURES...since that transaction is NOT ACTUALLY SUBJECT TO TRID...do we report these fields as "NA"? Or do we report those fields according to what is provided in the CloD.
Again...emphasizing that the transaction is truly commercial purpose and not subject to TRID, but TRID docs were indeed provided.

(I don't understand investor requirements often...)
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#2155395 - 11/29/17 09:34 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
David Dickinson Offline
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Central City, NE
I would report those fields as NA. If the loan is not subject to Reg Z, then HMDA says to report these as NA. Just because you over disclose TRID doesn't mean you should improperly report HMDA data too.
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#2155478 - 11/30/17 02:47 PM Re: Comm'l Purp on SM Loans with Consumer Disclosures? Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
Thank you sir! That is what I was thinking too but wanted to make sure I was not alone smile
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