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#2152029 - 11/02/17 01:21 PM HPML and ATR - Dwelling owned by LLC
RVFlyboy Online
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Loan is made to an individual for consumer purposes. Loan is secured by the borrower's current principal residence which is owned by an LLC. LLC has hypothecated the collateral for the loan. I've already determined that rescission does not apply as no consumer's ownership interest in the property is subject to the security interest. I also believe that the ATR/QM provisions of 1026.43 apply as there is no reference to ownership of the dwelling securing the loan, but want to confirm that my interpretation of those is correct. The loan is not subject to any other exemption under ATR section.

I'm less clear on HPML rules applicability. 1026.35(a)(1) states: "Higher-priced mortgage loan" means a closed-end consumer credit transaction secured by the consumer's principal dwelling..." In this sentence, does the possessive case on consumer's mean there has to be an ownership interest, or is it just indicating that it is the primary residence where the consumer lives? You could argue either way. I tend to lean toward the latter, meaning that the HPML rules would still apply in my scenario above, even with the residence owned by an LLC. This is based on the fact that the definitions in Reg Z for consumer and for dwelling make specific references to the ownership interest in connection with rescission rules, but not for any other sections.

So three questions:
1. Do you agree with my interpretation that rescission does not apply?
2. Do you agree with my interpretation that ATR/QM does apply?
3. Do HPML rules apply to the transaction (presuming no other exemption applies)?
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General Discussion
#2152039 - 11/02/17 02:32 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
RR Joker Offline
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1. Yes
2. Never thought about it, but see no exclusion for your case
3. No, because it's not the consumer's PR.
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#2152043 - 11/02/17 02:40 PM Re: HPML and ATR - Dwelling owned by LLC RR Joker
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"...Somewhere in Middle Americ...
But Joker, it is the consumer's PR.

Agree with 1 & 2 though.

Dang, I hate reading Reg Z this early in the morning!

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#2152075 - 11/02/17 03:31 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
RR Joker Offline
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See this thread, Dan's explanation, in particular. I couldn't say it any better than he did:

https://www.bankersonline.com/forum/ubbthreads.php/ubb/showflat/Number/2005871
Last edited by John Burnett; 11/03/17 07:13 PM. Reason: shortened the url to make it a link.
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#2152077 - 11/02/17 03:35 PM Re: HPML and ATR - Dwelling owned by LLC RR Joker
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"...Somewhere in Middle Americ...
Nice!

Thanks for sharing that train of thought. I love that we walk through things together (with the help of very knowledgeable folks like Dan!) I also like the image of having something pounded into one's head.

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#2152079 - 11/02/17 03:43 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
RR Joker Offline
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And actually, it's the precise definition posted by Kathleen at the end that is the clincher. I went to the def's first, but my eye and my mind didn't put the 'if' together right to use it...LOL! but I remembered the thread discussion. smirk

Way to much TRID and HMDA swamping my brain and choking off cells right now. crazy
Last edited by RR Joker; 11/02/17 03:44 PM.
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#2152081 - 11/02/17 03:51 PM Re: HPML and ATR - Dwelling owned by LLC RR Joker
Cornfed Turtle Offline
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"...Somewhere in Middle Americ...
Originally Posted By RR Joker
Way to much TRID and HMDA swamping my brain and choking off cells right now. crazy


Amen! You know it's going to be a day when you are running two sessions of BOL on side-by-side screens.

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#2152087 - 11/02/17 04:13 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
rlcarey Online
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It is not the consumer's dwelling:

Official Interpretation

2(a)(19) Dwelling

1. Scope. A dwelling need not be the consumer's principal residence to fit the definition, and thus a vacation or second home could be a dwelling.
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#2152104 - 11/02/17 04:35 PM Re: HPML and ATR - Dwelling owned by LLC RR Joker
RVFlyboy Online
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Originally Posted By RR Joker
And actually, it's the precise definition posted by Kathleen at the end that is the clincher. I went to the def's first, but my eye and my mind didn't put the 'if' together right to use it...LOL! but I remembered the thread discussion. smirk

Way to much TRID and HMDA swamping my brain and choking off cells right now. crazy
But Kathleen's posted definition is very specifically for rescission (sections _.15 and _.23). I'm not convinced we can carry that over to HPML. Someone convince me.

Originally Posted By rlcarey
It is not the consumer's dwelling:

Official Interpretation

2(a)(19) Dwelling

1. Scope. A dwelling need not be the consumer's principal residence to fit the definition, and thus a vacation or second home could be a dwelling.
I'm not sure where this adds any clarification to the confusion that an apostrophe can cause. Does that apostrophe always indicate ownership? If I say something has to be done in Jim's office, does that mean the office that Jim owns or could it also potentially mean the office that Jim occupies? And if there is nothing that specifies it means the office Jim owns, how can I tell what the intent is? So for purposes of HPML rules, I'm not seeing anything that specifically says "consumer's principal dwelling" means the dwelling owned by the consumer and occupied by them as their principal place of residence except as very specifically relates to rescission. And if they were specific for rescission, why wouldn't they have also been specific for HPML if that was their intention?
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#2152107 - 11/02/17 04:46 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
rlcarey Online
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Higher-priced mortgage loan" means a closed-end consumer credit transaction secured by the consumer's principal dwelling..."

It is not the consumer's dwelling. It belongs to the LLC.

The regulators are protecting the consumer's dwelling in this regulation. The fact that a company pledges a dwelling to secure the loan and the borrower fails to pay and you foreclose on the company - the regulators could care less.
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#2152152 - 11/02/17 06:27 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
Dan Persfull Offline
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The regulators are protecting the consumer's dwelling in this regulation. The fact that a company pledges a dwelling to secure the loan and the borrower fails to pay and you foreclose on the company - the regulators could care less.

That.

But Kathleen's posted definition is very specifically for rescission (sections _.15 and _.23). I'm not convinced we can carry that over to HPML. Someone convince me.

If I pledge my home as security for a loan my son is getting and I am not a borrower (no credit is being extended to me) then for Regulation Z I am not a consumer except for the right of rescission. Therefore my son's loan is not secured by a consumer's primary residence.
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#2152154 - 11/02/17 06:32 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
Dan Persfull Offline
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And from the Commentary:

2(a)(11) Consumer

1. Scope. Guarantors, endorsers, and sureties are not generally consumers for purposes of the regulation, but they may be entitled to rescind under certain circumstances and they may have certain rights if they are obligated on credit card plans.
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#2152216 - 11/03/17 12:01 AM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
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I still think there is room to argue it the other way, except as relates to rescission. There, the reg and commentary is very specific, and I don’t have any issue accepting that rescission doesn’t apply in this scenario. But as I mentioned before, in generally accepted grammar, “Jim’s office” could mean either an office Jim owns or it could mean an office Jim occupies. By the same token, absent any specific commentary, “consumer’s principal dwelling” could mean a dwelling owned by the consumer (which is what most of you are advocating) but couldn’t it also mean a dwelling occupied by the consumer as a principal residence?
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#2152219 - 11/03/17 12:31 AM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
RVFlyboy Online
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By the way, is anyone arguing that ATR rules of 1026.43 do NOT apply to this transaction? Because if ATR applies (no mention of either whether the consumer owns or occupies the dwelling securing the loan), logically speaking, why would HPML not apply?

In my scenario, Joe, the borrower is a consumer. The credit is extended for a personal purpose to Joe, a consumer, so it is clearly a consumer credit transaction. The loan is secured by both a lot being purchased by Joe and a dwelling owned by Joe’s LLC, so clearly it is a consumer credit transaction secured by a dwelling. Thus, according to 1026.43(a), unless an exemption applies (none does), the loan is subject to the provisions of that section. So I absolutely contend that ATR applies.

The HPML provisions have almost the same verbiage. Our loan to Joe is a closed-end loan, so we can still agree that it is a closed-end consumer credit transaction. So the only question that remains is whether it is a consumer’s principal dwelling that secures the loan. The rescission rules make it very clear that the consumer must have an ownership interest in the dwelling in order for rescission to apply. But can you apply the rescission commentary to the HPML section of the Reg? If the regulators intended HPML to apply only if the consumer had an ownership interest in the dwelling, they certainly could have worded it as such - they could have said "Higher-priced mortgage loan" means a closed-end consumer credit transaction secured by the consumer's principal dwelling if the consumer has an ownership interest in that dwelling.” Or they could have said that the commentary related to a “consumer’s principal dwelling” in section 1026.23 applies here too. But they didn’t do either of those things. And I think that leaves the question open to debate.
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#2152240 - 11/03/17 01:32 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
Dan Persfull Offline
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Carve out the special rule for rescission.

(11) Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.

2(a)(11) Consumer

1. Scope. Guarantors, endorsers, and sureties are not generally consumers for purposes of the regulation, but they may be entitled to rescind under certain circumstances and they may have certain rights if they are obligated on credit card plans.

If I am not a consumer under Reg. Z's definition (no credit extended to me) then the regulation does not apply to me.
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#2152255 - 11/03/17 02:19 PM Re: HPML and ATR - Dwelling owned by LLC Dan Persfull
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Originally Posted By Dan Persfull
Carve out the special rule for rescission.

(11) Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.

2(a)(11) Consumer

1. Scope. Guarantors, endorsers, and sureties are not generally consumers for purposes of the regulation, but they may be entitled to rescind under certain circumstances and they may have certain rights if they are obligated on credit card plans.

If I am not a consumer under Reg. Z's definition (no credit extended to me) then the regulation does not apply to me.
I'm not contending the LLC is a consumer. But Joe clearly is a consumer. Joe is who the credit is extended to, not to the LLC. The LLC is hypothecating the property it owns which is the dwelling Joe occupies as his principal dwelling.
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#2152262 - 11/03/17 02:47 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
Rocky P Offline
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Going back to the legislative intent, IMHO, the law was enacted to prevent a consumer from making a rash decision where they could lose their home.
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#2152308 - 11/03/17 07:27 PM Re: HPML and ATR - Dwelling owned by LLC RVFlyboy
John Burnett Offline
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Don't apply that logic, Rocky P, to the HPML question. The protection from a rash decision business is all about rescission. For waht it's worth, in Jim's (BeechFlyboy's) scenario, the borrower (Joe) is a consumer because he's the borrower. And the dwelling (owned by the LLC) is Joe's principal residence, even though he doesn't own it. The wording of the regulation for HPMLs doesn't require that the consumer own the dwelling, only that it be his/her principal residence. As noted several times above, 's added to a name doesn't equate with ownership. It's Joe's principal residence whether he owns it or not. I agree with Jim that the HPML rules would apply if other criteria are met.
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