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#2143902 - 08/28/17 08:16 PM Business Purpose secured by Principal Dwelling
beegee Offline
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Joined: Feb 2004
Posts: 1,092
South
We have a commercial purpose loan but using equity out of primary residence for equity injection in the business. This is a 2nd mortgage. What loan compliance issues are triggered?

Flood, Appraisals, Reg. B. Any others?

Thanks!
Last edited by John Burnett; 08/28/17 08:26 PM. Reason: changed principle to principal in subject
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Lending Compliance
#2143909 - 08/28/17 08:23 PM Re: Business Purpose secured by Principal Dwelling beegee
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,277
You can report as a CRA type 3 "Other Small Business" if you wish. No HMDA until you refinance. No Reg Z.

Reg O as applicable.
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#2145354 - 09/08/17 04:24 PM Re: Business Purpose secured by Principal Dwelling beegee
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,170
What if you have a loan to an entity for the purpose of purchasing a single family residence? Is it exempt from Reg Z?

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#2145358 - 09/08/17 04:33 PM Re: Business Purpose secured by Principal Dwelling beegee
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,235
Galveston, TX
Yes, but if the transaction is consumer purpose, it would be subject to a GFE and HUD-1 under RESPA.
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#2145386 - 09/08/17 06:03 PM Re: Business Purpose secured by Principal Dwelling beegee
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,170
Well, that's just great. Love it when commercial lenders just do whatever they want.....

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#2145676 - 09/12/17 04:35 PM Re: Business Purpose secured by Principal Dwelling beegee
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,170
Just so I understand.....if the loan had been for a business purpose, it would have been exempt from RESPA?? I have another request that is to an entity, but it's a business purpose - a construction loan to build 5 single family residences.

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#2145698 - 09/12/17 06:32 PM Re: Business Purpose secured by Principal Dwelling beegee
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,235
Galveston, TX
Business purpose loans are exempt from both RESPA and Reg. Z.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2145730 - 09/12/17 08:18 PM Re: Business Purpose secured by Principal Dwelling beegee
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,170
Thanks, Randy. I need to re-train our commercial lenders, since they seem to be having trouble distinguishing a consumer/commercial loan. smirk If you know of any materials or resources, let me know.

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#2146138 - 09/14/17 08:25 PM Re: Business Purpose secured by Principal Dwelling beegee
Moman Offline
Platinum Poster
Joined: Jul 2004
Posts: 505
WA
"Follow the money". That's my mantra when training, re-training, reinforcing with commercial lenders. You have to beat that drum several times each year. I have Compliance Tips that go out several times a month that are single-topic, and targeted to a particular audience at times, dependent on the topic.

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#2146173 - 09/14/17 10:35 PM Re: Business Purpose secured by Principal Dwelling beegee
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,170
I assume when you say "follow the money" you are talking about what the loan proceeds will be used for. Our struggle is if the loan is to an entity (making it exempt from Reg Z), but the purpose and what the proceeds will be used for is consumer, do we have an issue? What comes first - the fact the loan is to an entity or the fact it's a consumer purpose? Based on 1026.3(a)(9) below, the entity exemption applies regardless of the purpose.

1026.3 – Exempt transactions

(a) Business, commercial, agricultural, or organizational credit. (1) An extension of credit primarily for a business, commercial or agricultural purpose.

9. Organizational credit. The exemption for transactions in which the borrower is not a natural person applies, for example, to loans to corporations, partnerships, associations, churches, unions, and fraternal organizations. The exemption applies regardless of the purpose of the credit extension and regardless of the fact that a natural person may guarantee or provide security for the credit. But see comment 3(a)-10 concerning credit extended to trusts.

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#2146210 - 09/15/17 12:53 PM Re: Business Purpose secured by Principal Dwelling beegee
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,235
Galveston, TX
Yes, for Reg. Z. But the exemptions in REPSA only references the business purpose exemption in Reg. Z and not the entity exemption. It is a quirk in the combination of the two regulations. So even if you have an entity as a borrower, if the loan is for consumer purposes, it is covered under RESPA and the GFE and HUD-1 rules.

1024.5(b) (2) Business purpose loans. An extension of credit primarily for a business, commercial, or agricultural purpose, as defined by 12 CFR 1026.3(a)(1) of Regulation Z. Persons may rely on Regulation Z in determining whether the exemption applies.
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#2161876 - 01/25/18 06:05 PM Re: Business Purpose secured by Principal Dwelling beegee
complyorelse Offline
Gold Star
Joined: Nov 2007
Posts: 442
U.S.
In addition to the GFE and HUD-1, do we need to provide the Home Loan Toolkit, Homeownership Counseling Notice, and Servicing Disclosure in these scenarios (commercial entity borrower but consumer purpose)?

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#2163366 - 02/06/18 08:55 PM Re: Business Purpose secured by Principal Dwelling beegee
Doin it Right Offline
Junior Member
Joined: Apr 2017
Posts: 35
This would be HMDA reportable under the 2018 rules.

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