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#2160558 - 01/16/18 06:20 PM
Bridge loans & HMDA 2018
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Posts: 151
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I have a question regarding bridge loans and the new HMDA rules. Borrower buys a home for $200,000. He gets a 1st mortgage loan from us for $180,000 and a 2nd mortgage loan for $10,000. He pays the rest in cash. The 2nd mortgage loan is secured by his current residence. After moving into the new home, his previous home (the one secured by the 2nd mortgage) sells, and the loan is paid off. Is that 2nd mortgage loan considered bridge financing such that it would not be reportable under HMDA? All of this assumes that the loans close in 2018. Reg C says:
"i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3)."
The 2nd mortgage loan is not being replaced by other financing, and that's why I'm not sure it would be exempt from HMDA. Thank you.
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#2160571 - 01/16/18 06:44 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Posts: 47,532
Bloomington, IN
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Is that 2nd mortgage loan considered bridge financing"
Yes and the cite you provided supports it being so.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2160574 - 01/16/18 06:48 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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If I understand Karen's scenario the borrower obtained permanent financing for $180K, bridge loan for $10K and paid $10K in cash.
The bridge loan paid from the sale of the home. IMO that loan is exempt based on the cite Karen provided. Am I misinterpreting that?
i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3).
Last edited by Dan Persfull; 01/16/18 06:52 PM. Reason: Add citation.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2160580 - 01/16/18 06:56 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Posts: 151
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The $10,000 loan is not being replaced by other financing. It's paid off from the sale of the borrower's previous home.
David, did you mean to say, "Bridge loans ARE NOT reportable in 2018 IF they are replaced by permanent financing"?
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#2160601 - 01/16/18 07:41 PM
Re: Bridge loans & HMDA 2018
Karen B.
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100 Club
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Thank you both for responding to my question. I'm glad I wasn't the only one that found this confusing!
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#2160604 - 01/16/18 08:02 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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I sent the following question to HMDA Help. Will let you know when I get a reply.
i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3).
Borrower purchase a home for $200,000. The borrower obtains two loans. Loan #1 is a 30 year permanent financing loan for $180,000 secured by the new dwelling. Loan #2 is a $10,000 bridge loan for part of the down payment for a 1 year term secured by his existing dwelling. He pays the remaining $10,000 down payment in cash. The existing dwelling sells and the borrower pays off the $10,000 bridge loan from the proceeds.
Under this scenario is the $10,000 bridge loan exempt from reporting?
Thank you,
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2160616 - 01/16/18 08:37 PM
Re: Bridge loans & HMDA 2018
Karen B.
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#2160621 - 01/16/18 08:58 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Maybe they will understand the question being asked. My understanding was that if they got temporary financing for the purchase and temporary financing for a down payment AND the temp financing for the purchase is paid by other long-term financing once current home sells AND down payment portion is paid off...you would not report either one of those...just the perm financing.. [I have never done one like that, but I understand they exist...ours would typically be 100% more or less with paydown/term out at sale of current home]
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160718 - 01/17/18 04:23 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Power Poster
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Soaring over Georgia
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Logic would dictate that the $10,000 loan would not be reportable - the $180K loan IS the permanent financing. If a single temporary loan for $190K had been made at the time of purchase, and then refinanced into a $180K loan after the existing home was sold, only the $180K loan would be reportable. It shouldn't be any different because it was split into two loans. But logic and CFPB are not terms that should necessarily be used in the same sentence.
We'll await word from Dan for what the CFPB has to say.
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Jim Bedsole, CRCM, CBA, CFSA, CAFP My posts - my opinions
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#2160723 - 01/17/18 04:58 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
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Posts: 47,532
Bloomington, IN
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Take it for what it is worth. Hello, Thank you for contacting the Consumer Financial Protection Bureau with your question regarding the Bureau’s regulations. Please note that the Office of Regulations provides only informal responses to questions concerning the interpretation of specific regulatory provisions of the rules under the interpretive authority of the Bureau and that our response does not constitute an official interpretation or legal advice. You asked whether a financial institution must collect and report data required under Regulation C for which a final action was taken on or after January 1, 2018, for a loan or line of credit that is considered temporary financing. No. Regulation C, 12 CFR § 1003.3(c)(3), effective January 1, 2018, excludes closed-end mortgage loans and open-end lines of credit that are obtained for temporary financing. As explained by Comment 3(c)(3)-1, a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. In addition, Comment 3(c)(3)-2 explains that a construction-only loan or line of credit is considered temporary financing if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. For examples of loans or lines of credit that are considered temporary financing, see Comment 3(c)(3)-1.i through .iii. For general information regarding loans that are excluded from HMDA data reporting, see section 4.1.2 of the HMDA Small Entity Compliance Guide. The Bureau also discussed excluded transactions during its August 6, 2016, HMDA webinar, which can be accessed through this link. This topic is discussed at minute 26 of the webinar, and begins on page 74 of the webinar slides. You may also wish to review the 2018 HMDA Transactional Coverage Chart to help determine whether a transaction is reportable. The Bureau has published a number of additional resources to help you comply with the Home Mortgage Disclosure Act rule. These resources, including a compliance guide, key dates timeline, institutional coverage charts, and webinars are available on the Bureau’s website. Here, you will also find a link to a webpage dedicated to resources for HMDA filers. If after reviewing these materials you have a question regarding how to interpret a specific section of a Bureau regulation, you may submit it to us using the form located on our website at https://reginquiries.consumerfinance.gov. Thanks, CFPB Office of Regulations
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2160727 - 01/17/18 05:08 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Thank you for digging into this, Dan. The response isn't as clear as I'd like it to be, but I'm definitely going to save it, and I'm going to check out the resources they've referenced. I appreciate your extra effort on my behalf!
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#2160732 - 01/17/18 05:33 PM
Re: Bridge loans & HMDA 2018
Karen B.
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This is the part that makes a difference to me on when certain events happen and why my opinion of the actual event described by the OP would not be exempt.
As explained by Comment 3(c)(3)-1, a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160734 - 01/17/18 05:38 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Here's what I found in the Small Entity Guide on page 34. I'm hanging my hat on this when I say that bridge loans aren't HMDA reportable:
"Examples: Ficus Bank extends a bridge or swing loan to finance a borrower’s down payment for a home purchase. The borrower will pay off the bridge or swing loan with funds from the sale of his or her existing home and obtain permanent financing from Ficus Bank at that time. The bridge or swing loan is excluded as temporary financing."
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#2160737 - 01/17/18 05:42 PM
Re: Bridge loans & HMDA 2018
Karen B.
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That is precisely correct. However, that is not what was described in the OP.
In the original post, the $180,000 was not a piece of a bridge loan, it was already the perm financing of the new home. Therefore, the $10,000 down payment is not excluded as temporary bridge because there will be no other permanent financing after sale of prior home.
IF the $180k had been done as a temp loan along with the $10k loan, then perming out the $180 and paying off the $10k loan when prior home sells would have excluded them both as temporary loans.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160740 - 01/17/18 05:46 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Platinum Poster
Joined: Aug 2010
Posts: 528
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Seems like they avoided addressing Dan's scenario specifically, but we're to assume they are implying that the $10k loan would fall under the "temporary financing" exclusion....
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#2160744 - 01/17/18 05:54 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Not in my opinion...no. It fails to meet this test:
a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
Where the Bureau expanded this for 2018 was to include these down payment pieces as well...even if paid in full when prior home sells...but that's in conjunction with a permanent loan event. That is not what was described in the OP...the permanent loan happened initially, not later on.
Last edited by RR Joker; 01/17/18 05:56 PM.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160747 - 01/17/18 06:34 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Posts: 528
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I was referring to the response Dan got from HMDA "Help"....
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#2160752 - 01/17/18 06:49 PM
Re: Bridge loans & HMDA 2018
Karen B.
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The Swamp
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I don't get that assumption from that reply at all Indy Banker. Once more:
As explained by Comment 3(c)(3)-1, a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160762 - 01/17/18 06:56 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Power Poster
Joined: Oct 2000
Posts: 5,991
Soaring over Georgia
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I think the CFPB help line did not take time to understand the question asked. They responded to the question "Are we required to collect and report information on a temporary loan?" (see 2nd paragraph of Dan's response from CFPB). But that isn't the question being asked. I think we all know the answer to that question. The question being asked is if the $10,000 loan for the downpayment is a temporary loan, given that it's purpose was to bridge the sale of existing home and purchase of a new, but that it is not being paid off with new loan proceeds from a more permanent loan.
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Jim Bedsole, CRCM, CBA, CFSA, CAFP My posts - my opinions
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#2160771 - 01/17/18 07:56 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Posts: 20,656
The Swamp
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Agree, Jim. Everything they have said doesn't include the possibility of the permanent loan happening 'first'.
It would make sense, but that's not how they have worded any of it.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160841 - 01/18/18 01:44 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Yes, that's what I was trying to say, David. I like your choice of wording better though...it puts a much better twist on the same situation ~! Removing it from the mind-game of 'all in one place' makes it even clearer.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160849 - 01/18/18 01:53 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Posts: 47,532
Bloomington, IN
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I sent the following this morning to https://reginquiries.consumerfinance.gov instead of resending to HMDA Help. 1003.3(c)(3) states the following: Paragraph 3(c)(3) 1. Temporary financing. Section 1003.3(c)(3) provides that closed-end mortgage loans or open-end lines of credit obtained for temporary financing are excluded transactions. A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3). Scenario in question: Borrower purchase a home for $200,000. The borrower obtains two loans. Loan #1 is a 30 year permanent financing loan for $180,000 secured by the new dwelling. Loan #2 is a $10,000 single pay bridge loan for part of the down payment for a 1 year term secured by his existing dwelling. He pays the remaining $10,000 down payment in cash. The existing dwelling sells and the borrower pays off the $10,000 bridge loan from the proceeds. Under this scenario is the $10,000 bridge loan exempt from reporting? Or since it was not "refinanced" into longer term financing due to it and the permanent loan were closed simultaneously as two separate loans would it be reportable?
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2160850 - 01/18/18 02:01 PM
Re: Bridge loans & HMDA 2018
Karen B.
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The Swamp
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Perfect!
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160911 - 01/18/18 06:28 PM
Re: Bridge loans & HMDA 2018
RR Joker
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Joined: Sep 2001
Posts: 445
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Agreed. Dan’s example scenario nails the question at hand. The CFPB’s example “The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender.†confounds the issue and as David relates, is horribly worded. The conjunctive and messes up the example. To me, if the borrower “pays off the bridge or swing loan with funds from the sale of his or her existing home,†the bridge loan is reportable. But if the borrower “obtains permanent financing for his or her new home from Lender A or from another lender†to payoff the bridge loan, it is not reportable.
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#2160918 - 01/18/18 07:24 PM
Re: Bridge loans & HMDA 2018
Karen B.
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That's actually not how 2018 works. They specifically say that if you get a loan for a downpayment on a new home, it can be paid off when the old home sells and not be reportable. The key very well lies in that little word 'and'. Also key is 'at a later time'. If they had gotten a bridge for the purchase and a side loan for the downpayment [for whatever reason], the downpayment portion could be included in that temp definition even if paid in full so long as other long term financing is part of that 'payout' of the bridge portions.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160926 - 01/18/18 07:50 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Joined: Nov 2000
Posts: 18,762
Central City, NE
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If they had gotten a bridge for the purchase and a side loan for the downpayment [for whatever reason], the downpayment portion could be included in that temp definition even if paid in full so long as other long term financing is part of that 'payout' of the bridge portions. I disagree Joker. As I read the 2018 rules, a bridge only loan (or construction loan) IS reportable in 2018. Whether that's a 1st or 2nd lien doesn't matter. I also don't think it matters if there's another loan involved. The Commentary to §1003.2(j) #3 states, "A home purchase loan does not include a construction-only loan (construction phase) that is designed to be replaced by permanent financing at a later time…" I read the bridge loan requirements the same way [§1003.3(c)(3) - that we've already quoted]. Plus, the Commentary to §1003.3(c)(3) #1 states "A loan or line… is considered temporary financing and excluded… if the loan or line… is designed to be replaced by permanent financing at a later time" In other words, you must have two-phase financing to call the first phase temporary (excluded). I guess that's why we need this clarification. Hopefully, they will reply to Dan's email and we can get this straightened out.
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#2160936 - 01/18/18 08:25 PM
Re: Bridge loans & HMDA 2018
Karen B.
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The Swamp
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Yes, we definitely do. I kinda think Kathleen did get clarification on this, which is where my understanding comes from.
I still can't fathom why you would separately do a temp purchase and a temp down payment loan though. That just does not compute to me. But the scenario the bureau uses, only speaks to the down payment piece really and it seems like what they were attempting to say was, if part 1 and part 2 temp loans are paid in connection with long term financing once prior home sells, you can consider part 2 exempt even if that piece [down payment] is paid in full instead of included in the amortized loan that pays off part 1.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2160991 - 01/19/18 01:25 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
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The Swamp
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Good example and at least to me, further confirms the differences in when the 80% permanent portion actually happens.
Perhaps the confusion comes into play because 'normally' if both the 80 and the 10 financed portions are done temporarily as a bridge, by the same creditor, while waiting on the house to be sold...they wouldn't have been done that way...there would just be a 90-100% bridge to be paid down further upon sale and then permed out [temporary] or paid in full [short term reportable].
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2161005 - 01/19/18 02:30 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Why would the CFPB scenario say "part 1 is reported but part 2 isn't reported" when the Commentary to .2(j)#4 says to report both loans when it's a "piggy back" loan? What's the difference?
Those "piggy back" loans are generally designed to be repaid over longer term financing and not designed to be repaid when the borrower's current residence sells like bridge loans are designed to be repaid.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2161326 - 01/22/18 07:06 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Just spoke with Alexa from the CFPB and after the appropriate disclaimer the opinions are not "official or binding" she informed me that based on the strict reading of the regulation that the bridge loan in my example would not be excluded from reporting.
In a nutshell the opinion goes along the same line as David's.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2161356 - 01/22/18 08:41 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
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The Swamp
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Whew.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2161357 - 01/22/18 08:42 PM
Re: Bridge loans & HMDA 2018
Karen B.
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100 Club
Joined: Oct 2014
Posts: 151
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Many, many thanks to all of you who chimed in on this topic, and to you, Dan, for checking with both HMDA Help and the CFPB. I'm most grateful to have this matter resolved!
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#2161362 - 01/22/18 08:51 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Platinum Poster
Joined: Aug 2010
Posts: 528
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So when the field examiner questions you on this a year from now you can say you "asked Alexa" for the answer to a HMDA question....
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#2161436 - 01/23/18 01:17 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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It may have been because she had to leave a voicemail and I returned her call.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2161456 - 01/23/18 02:38 PM
Re: Bridge loans & HMDA 2018
Karen B.
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The Swamp
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Or, maybe they are all being cute. All female employees are giving the name "Alexa" and all Male employees are "Google" ?
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2182791 - 06/22/18 05:17 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Diamond Poster
Joined: Oct 2015
Posts: 1,669
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I finished reading through this thread, and I felt as I read down the line that @David's assessment would be the right call. I would assume that the same belief exists in the following scenario:
Bank provides Bridge loan secured by current dwelling to purchase a new dwelling with the intention that sale of the home they move out of will fully pay back the Bridge loan. This would seem to be reportable and not excluded as "temporary financing" as there is no intention to have it be replaced by perm. financing.
A little trick to this scenario is that if the home that the borrower moved out of failed to sell in a reasonable time, then a form of permanent financing would be set up. Does the potential for the permanent financing tip this type of Bridge loan to being "temporary financing," or would you say the main intention to get paid off by the home sale makes this HMDA reportable as a "Purchase?"
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#2182803 - 06/22/18 06:05 PM
Re: Bridge loans & HMDA 2018
Karen B.
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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IMO since the primary resource of repayment is the sale of the house and long term financing is a what if scenario I would report the loan.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2182936 - 06/25/18 02:35 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Power Poster
Joined: Sep 2010
Posts: 2,658
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I also agree.
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Adam Witmer, CRCM All statements are my opinion, not those of my employer, and should not be taken as legal advice. www.compliancecohort.com
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#2188951 - 08/13/18 09:49 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Diamond Poster
Joined: May 2013
Posts: 1,069
Compliance Land
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So I'm just now reading this thread. We, to this point, have treated these $10,000 "bridge loans" that are to be paid off from the sale of the current residence as NOT reportable. We obviously need to go back and add them to the LAR but what would you do for demographic information when we didn't collect it?
We didn't think it was HMDA reportable and also wouldn't have been subject to Reg B's collection requirement because it wasn't for the purchase of AND secured by primary residence (it was secured by the old residence)?
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#2188990 - 08/14/18 01:26 PM
Re: Bridge loans & HMDA 2018
Karen B.
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Diamond Poster
Joined: May 2013
Posts: 1,069
Compliance Land
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Thanks, David. That was my thought as well. We would have demographic information from our secondary market loan but that feels even less right to use since we didn't ask it at all on these "bridge" loans. We'll use "information not provided" and obtain DI from here on out.
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How long until retirement??
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