I posted this relative to an HPML transaction in another thread, but it impacts other regulations, as well, such as Reg. B, QM/ATR, etc. Scenario is as follows:

Bank does a cash-out equity for a land loan where Borrower intends to use loan funds to construct a home on the property. The loan is not being handled like a CP loan, but rather just directly getting equity funds from the land value. Property is secured by a mortgage deed, which I would assume would also include any dwelling built on said land. However, when the loan is closed, no dwelling exists. Are these loans subject to ATR/QM/Reg B., etc.? Or, would it be the case that the loan, at consummation, is actually considered not secured by a dwelling? I mean, who knows, let's say they change their mind and never build on the property? HMDA is clear as there is now the 2-year look forward "rule," but I am having a hard time with the other Regulations, as they do not have this look forward rule.

My opinion hasn't changed. I do not see how anyone could classify this as anything but a construction/permanent loan with no construction phase. Therefore it is not exempt from any of the applicable regulations.

If the borrower decides not to build the house after the fact then that is just a risk the bank is stuck with for not controlling the construction funds.

BTW...if the borrower does use the funds for anything other than stated you need to file a SAR for mortgage fraud.

Well, supposedly it is not a risk because the loan amount is based on the value of the land, not the to be constructed home, so there is no need to control the funds.

I don't necessarily think a SAR would be warranted. Things come up. There might be a medical emergency that requires them to use the funds for that reason. Again, the basis for the funds is the value in the land, not the constructed dwelling. It doesn't really matter whether they build the dwelling or not. .

I just have a hard time "seeing" this as being secured by a dwelling. There is no dwelling at consummation and there very well might never be one. HMDA is clear, but no other rule has a "look forward" rule based on intention.

Explain how the loan does not meet the following definition.

(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling.

Your own words confirm the loan is for the initial construction of the dwelling and that is the stated purpose of the loan and the assumed use of the proceeds at the time of consummation. And it is a construction permanent loan under that assumption. The fact you chose not to control the construction funds or implement a construction phase in the loan agreement does not change that fact.

7. Construction on previously acquired vacant land. A residential mortgage transaction includes a loan to finance the construction of a consumer's principal dwelling on a vacant lot previously acquired by the consumer.

They state this is what they are doing. It's treated as this is what they WILL do.

Yeah, I get you . . . but, it's not a loan to finance construction of the principal dwelling per se. It's just a cash-out on land. So, I guess, same situation, but they tell you the funds will be used to take a vacation. Then, everybody would say none of these Regulations apply. That just doesn't seem right to me.

Is it not secured by a primary dwelling at closing, and who knows when/if that will actually be completed, and therefore inapplicable?

This comment you made in the other thread sure implies it will be a primary dwelling.

it's not a loan to finance construction of the principal dwelling per se

If that is the borrower's intended/stated purpose for the loan it is.

What on earth ever gave you the idea that anything to do with regs ever has to 'seem right?'

Sorry...but you simply can't question the intent of a loan and you treat it accordingly. If you [have reason to] question it, it probably should be a denial.

Sorry, lost the quote I was particularly responding to in the edit. UGH.

I've been searching to try to remember/find if this scenario is subject to ATR, I know it's consumer purpose, and subject to TRID: a loan to purchase a vacant lot that will be eventually paid off by a construction loan. The plan is the constructed house will become the borrower's primary residence.

Does my short term purchase land only loan need to meet ability to repay requirements?

Not if it only funds the purchase of the land, and no construction.