Skip to content
BOL Conferences
Thread Options
#21853 - 06/25/02 04:43 PM Multipurpose Loan and Disclosures
Rick Tryon Offline
100 Club
Rick Tryon
Joined: Mar 2002
Posts: 169
Clinton IN, USA
Okay, I've been on vacation and my brain needs a kickstart! I have a loan officer who is making a commercial loan to a guy who is recently divorced. In this loan he is going to pay off his current mortgage and transfer title of the property to his ex-wife, purchase an OREO property from us (to be used as his residence), and consolidate two business loans. The majority of the funds will go to consolidation of the business loans. The mortgage on the business and the mortgage on the OREO will be our collateral. The question is what disclosures are required? I feel this is exempt from Reg Z because the primary purpose is business related. Does the business exeption also apply for RESPA? If disclosures are required, is the full amount of the loan required to be disclosed, or just the amount for the purchase of the residence? Lastly, is this reported to HMDA, CRA, or both?
_________________________
Opinions expressed here are mine, not necessarily my employers. This is not legal advice.

Return to Top
Lending Compliance
#21854 - 06/25/02 06:59 PM Re: Multipurpose Loan and Disclosures
Lucy Griffin Offline

Diamond Poster
Lucy Griffin
Joined: Nov 2000
Posts: 1,544
If I have the facts straight, your borrower is using the loan to:
1. Pay off one house.
2. Purchase his principle dwelling.
3. Consolidate two business loans.

One of your questions is easy. Whatever we decide for Z carries over to RESPA. So if we decide that this is a business purpose loan under Truth in Lending, it has the same status under RESPA.

One of the primary considerations is the amount (%)of the loan balance that will go toward paying off and purchasing the dwellings. Those purposes are clearly personal. The business loan consolidation is clearly business purpose. To decide whether this loan is covered, you need to determine the "primary purpose" of the loan. Given this many purposes, the proportion of the loan going to the business purposes relative to the personal purposes should be the deciding factor. If still unclear, you might take into consideration how the customer plans to treat the interest on the loan for tax purposes.

If things are still unclear, you may want to advise separating this transactions into 2 loans, one for the dwellings and one for the business.


Return to Top
#21855 - 06/25/02 06:59 PM Re: Multipurpose Loan and Disclosures
JulieB Offline
Junior Member
JulieB
Joined: Apr 2002
Posts: 38
SC
The loan would be exempt from Reg Z and RESPA because of business purpose. I would think that HMDA would apply. On page D-9 of the "Getting It Right" booklet, it states that for multiple-purpose loans, "an institution reports the entire amount of the loan, even if only a part of the proceeds is intended for home purchase or home improvement."

Return to Top
#21856 - 06/25/02 07:07 PM Re: Multipurpose Loan and Disclosures
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Wow Rick. Could you make it any harder? OK, let's dissect this thing. You say that the funds are primarily business purpose, therefore, TIL and RESPA are gone. That makes it a little easier.

Whew! I hope this helps.
CRA doesn't allow you to count small business loans that are secured by a residence, so CRA is out.

HMDA is a little trickier. A home purchase loan is a loan secured by a dwelling and made for the purpose of purchasing a dwelling (which this is), but you need to read the commentary to 203.2(g) (the definition of home purchase:
---------------------------------------------------------
2. Mixed-use property. A loan to purchase property used primarily for residential purposes (for example, an apartment building containing a convenience store) is a home-purchase loan. An institution may use any reasonable standard to determine the primary use of the property,
such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis. (Appendix A of this part, Paragraphs IV.A., IV.B.1., and V.A.5. Code 1.)

4. Commercial and other loans. A home-purchase loan includes a loan originated outside an institution’s residential mortgage lending division (such as a loan for the purchase of an apartment building made through the commercial loan department). For home-purchase loans,
there is no classification test. (Appendix A of this part, Paragraphs IV. and V.A.5. Code 1.)

-----------------------------------------------------------
Although these may not perfectly fit your situation, I understand this to tell me that if >50% of your loan is for non-home purchase, it is not a HMDA loan. Therefore, I don't think your loan is HMDA reportable.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#21857 - 06/25/02 07:16 PM Re: Multipurpose Loan and Disclosures
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
While I was researching my first answer, I see that Lucy and Julie responded as well. Julie references Page D-9 of the HMDA book. This section refers to home improvement loans, not home purchase loans. The general rule is:

Purchase: If the loan is primarily to purchase a dwelling (> 50%);
Home improvement: If any proceeds are to improve a dwelling (1%).
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#21858 - 06/25/02 07:52 PM Re: Multipurpose Loan and Disclosures
Rick Tryon Offline
100 Club
Rick Tryon
Joined: Mar 2002
Posts: 169
Clinton IN, USA
Thanks to you all for "priming the pump". After 10 days off I had practically forgotten what compliance was. (Not really, but I tried!) Anyway, I was pretty sure I was thinking right regarding this scenario as being exempt from TILA and RESPA. I was unclear on the HMDA issue, so thanks for clearing that one up for me!
_________________________
Opinions expressed here are mine, not necessarily my employers. This is not legal advice.

Return to Top

Moderator:  Andy_Z