Topic Options
#2178177 - 05/15/18 01:11 PM ATR Temporary Finance Definition
JAK747 Offline
New Poster

Registered: 09/28/12
Posts: 9
Loc: Kentucky
Under the ATR rules there is an exemption from certain sections of 1026.43 for “temporary financing”. It states:
(ii) A temporary or “bridge” loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling;

My question: is this simply a term length based test? Would a 6 month loan that is going to be repaid with cash still be exempt simply beacuse the term is 12 months or less or would this loan not be exempt because it isn’t a bridge to actual permanent financing and the 6 month loan IS the permanent financing.

We've had a borrower that wants to put a home on a 12 month term for interest only payments and then pay it off with cash at the end of the term. All the examples the regulation gives are typical examples of short term loans that precede longer term financing and I'm having trouble determining whether ATR would apply.

Top
Ability to Repay/Qualified Mortgage Rule
#2178194 - 05/15/18 01:58 PM Re: ATR Temporary Finance Definition [Re: JAK747]
rlcarey Offline
10K Club

Registered: 07/16/01
Posts: 67320
Loc: Galveston, TX
You would be exempt from Section 35 and 43, but not Section 32.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Top
#2187161 - 07/27/18 02:51 PM Re: ATR Temporary Finance Definition [Re: JAK747]
Luv2run Offline
Gold Star

Registered: 01/29/15
Posts: 308
As far as the definition for loan term under ATR it states " The period of time it takes to repay the loan". My question it, is it calculated from the date of close or the actual repayment period starting the next month. With only 12 months to play with I would hate to miss- calculate based on my interpretation.
_________________________
If at first you do succeed....try something harder
-fortune cookie

Top
#2187172 - 07/27/18 03:22 PM Re: ATR Temporary Finance Definition [Re: JAK747]
RR Joker Offline
10K Club

Registered: 11/15/02
Posts: 20016
Loc: The Swamp
Are you talking about that bridge loan with maybe interest only payments? You still likely only have a 12 month loan. Where those months come into play really big time is from first regular installment and balloons.

If you have a 12 month loan, you will have 11 payments of interest only and one final payment of principal and interest.

If that helpful at all?
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Top
#2187176 - 07/27/18 03:54 PM Re: ATR Temporary Finance Definition [Re: JAK747]
Luv2run Offline
Gold Star

Registered: 01/29/15
Posts: 308
Yes it is! I just wanted to be sure the count was not starting with month of closing rather than the amortization period.
Thanks!
_________________________
If at first you do succeed....try something harder
-fortune cookie

Top
#2188665 - 08/09/18 07:24 PM Re: ATR Temporary Finance Definition [Re: JAK747]
MAFCCons Offline
Member

Registered: 11/04/14
Posts: 74
Can I tag onto this one? If we have a 12 month bridge loan and it is exempt from ATR, would there be anything that would prohibit us from taking the property that they are going to be selling to repay the debt, as collateral? Under ATR, we can't do that but with temporary financing we would be exempt. We have traditionally shied away from bridge loans but have had several recently come up.

I tend to get into the "what-ifs" and my concern is, what happens when they can't sell the property and we try to work on the loan at the end of the 12 months? They can't sell the property and they can't repay the debt under normal terms and we have now entered into ATR territory.

Top
#2188667 - 08/10/18 07:39 AM Re: ATR Temporary Finance Definition [Re: JAK747]
rlcarey Offline
10K Club

Registered: 07/16/01
Posts: 67320
Loc: Galveston, TX
Well, the typical definition of a bridge loan is one in which the current residence and the future residence are both taken as collateral for a short period of time until the current residence sells. Happens all the time. If the property does not sell, then usually it is just renewed for another 12 months or whatever the term and it remains exempt.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Top
#2188688 - 08/10/18 10:29 AM Re: ATR Temporary Finance Definition [Re: JAK747]
MAFCCons Offline
Member

Registered: 11/04/14
Posts: 74
Our lenders don't seem to want to take the new property being purchased as collateral. So we have only what they are trying to sell as collateral.

Top
#2188738 - 08/10/18 01:37 PM Re: ATR Temporary Finance Definition [Re: JAK747]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 45023
Loc: Bloomington, IN
would there be anything that would prohibit us from taking the property that they are going to be selling to repay the debt, as collateral? Under ATR, we can't do that

Yes you can. What you can't do is rely on the property's value to calculate the ATR.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Top
#2188811 - 08/10/18 05:39 PM Re: ATR Temporary Finance Definition [Re: MAFCCons]
rlcarey Offline
10K Club

Registered: 07/16/01
Posts: 67320
Loc: Galveston, TX
Originally Posted By MAFCCons
Our lenders don't seem to want to take the new property being purchased as collateral. So we have only what they are trying to sell as collateral.


So they already own a home free and clear and they want to borrower against the home to buy a new one and they can't afford the loan payment?? Why would they just not walk away after they buy the new house and stick you with the old one and live in the new one scot-free? Your lenders need to go back to lending school.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Top
#2188891 - 08/13/18 01:21 PM Re: ATR Temporary Finance Definition [Re: JAK747]
MAFCCons Offline
Member

Registered: 11/04/14
Posts: 74
Dan, if we take the property they are going to sell as collateral and say that is our method of repayment on this loan, wouldn't that qualify as using the asset to calculate ATR? The only way they would be able to meet ATR on a reduced repayment schedule would be to sell the asset.

We don't do many bridge loans anyway and sometimes we have made them pledge collateral that they will keep and not planning to sell so there is more incentive to do the right thing in the end. However, not taking a lien on what they are selling means that we don't have our hand out for repayment.

One last question, if we were to take their current primary residence and the new residence being purchased, there is rescission. That creates a host of issues because the seller doesn't want to wait for their funds. Has anyone had any issues with this as well?


Edited by MAFCCons (08/13/18 01:23 PM)

Top
#2188979 - 08/14/18 08:44 AM Re: ATR Temporary Finance Definition [Re: JAK747]
RR Joker Offline
10K Club

Registered: 11/15/02
Posts: 20016
Loc: The Swamp
Yes, we do them rather frequently and nearly always take both properties. So long as all parties [including Realtors] understand this upfront, there has never been an issue with waiting 3 days.

On the other hand, be SURE all parties know up front because when you don't...it's the Realtors that get hot...not so much the buyer/seller laugh!
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Top
#2189052 - 08/14/18 01:58 PM Re: ATR Temporary Finance Definition [Re: JAK747]
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 45023
Loc: Bloomington, IN
Dan, if we take the property they are going to sell as collateral and say that is our method of repayment on this loan, wouldn't that qualify as using the asset to calculate ATR?

I would have to assume so.

My point though was your comment said under ATR requirements you could not take the property as collateral. That is not a true statement. ATR requirements do not prevent you from taking the property as collateral, you just can't use it to qualify the ATR requirements if you do.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Top
#2189127 - 08/14/18 10:36 PM Re: ATR Temporary Finance Definition [Re: JAK747]
MAFCCons Offline
Member

Registered: 11/04/14
Posts: 74
Dan, thanks! I understand your point now.

When we do take a primary residence as collateral on a purchase, it is a discussion I have with my lenders - make sure everyone knows!! We had one bad episode where my lender promised he was going to call and didn't. It was a HUD purchase and they refused to wait the 3 days. On the day before closing, we had to remove that extra property as collateral and the borrower had to come up with an additional $200K in cash. Thankfully they had it but a huge black eye for us.

Thanks for your feedback!

Top
#2189183 - 08/15/18 11:23 AM Re: ATR Temporary Finance Definition [Re: JAK747]
RR Joker Offline
10K Club

Registered: 11/15/02
Posts: 20016
Loc: The Swamp
HUD is a giant PITA to work with. js.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Top