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#2243149 - 09/25/20 07:20 PM Some Funds Towards Commercial Purpose
Cielo Offline
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I keep going back and forth on primary purpose for a loan I am looking into, and need some advice. The loan was a cash-out refinance in which a majority of the funds was directed towards the payoff of the old dwelling-secured loan, and the rest (cash out) was for a "property purchase" with work colleagues. In this example, lets say $200K is towards the actual payoff of the old loan and $20K is towards the cash out

My confusion is if this transaction's primary purpose is commercial or consumer. I thought it was mentioned in an old thread that we can also determine commercial purpose by the amount of loan funds going towards each purpose (consumer refinance of primary dwelling vs. commercial "property purchase"). I may be wrong and crazy on this - but it's been a long week.

I am still waiting on the LO to see if they can clarify "property purchase (i.e. office building or dwelling), so this can actually be a purchase and that may sway me towards commercial thinking about it. Anyway, any advice on this situation is greatly appreciated.

Happy Friday!

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#2243154 - 09/25/20 08:29 PM Re: Some Funds Towards Commercial Purpose Cielo
rlcarey Online
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Primary purpose is determined the same as Regulation Z. Were there TRID disclosures used?
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#2243193 - 09/28/20 04:10 PM Re: Some Funds Towards Commercial Purpose Cielo
Dan Persfull Offline
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Since this is in the HMDA forum I am assuming you are trying to determine if the loan would be exempt from HMDA reporting since it could be primarily for a business purpose. In this scenario it would not be exempt.

(10) A closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p);
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#2243263 - 09/29/20 04:10 PM Re: Some Funds Towards Commercial Purpose Cielo
Cielo Offline
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rclarley: TRID disclsosures were used in this situation; however this loan is for the secondary market and all investors require these disclosures regardless of consumer/commercial HMDA purpose. While I agree with where you are going, I don't know if this should be the only way to determine consumer purpose.

Dan: I apologize for not really explaining the question clearly. I agree on that the loan needs to be reported for HMDA purposes; however I am wondering if I report as commercial or consumer purpose, and if I can use the amount of funds going towards the borrower's primary house vs the funds going towards the purchase of "property" to determine this purpose?

The LO got back to me and doesn't know if the property is a bare lot, office building, retail store, or a dwelling...

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#2243267 - 09/29/20 04:15 PM Re: Some Funds Towards Commercial Purpose Cielo
Dan Persfull Offline
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Ahhh...I'm a partially exempt reporter so I don't have to report the purpose on our LAR so that aspect of reporting didn't even enter my mind.
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#2243297 - 09/29/20 08:38 PM Re: Some Funds Towards Commercial Purpose Cielo
John Burnett Offline
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Originally Posted by Cielo
The LO got back to me and doesn't know if the property is a bare lot, office building, retail store, or a dwelling..


Really? I'm guessing that might be important to know.
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#2243326 - 09/30/20 01:57 PM Re: Some Funds Towards Commercial Purpose Cielo
Inherent_Risk Offline
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I always struggle with this situation as well. 100% of the new money is for commercial, but the majority of funds to pay off a lien on the primary residence. I have not seen specific guidance on this, but I call these commercial based on the inverse of this:

6. Business credit later refinanced. Business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.

Definitely don't feel confident in that though, so curious what others would say. We also do give TRID disclsoures on these both for investor purposes and when in doubt disclose.

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#2243333 - 09/30/20 02:31 PM Re: Some Funds Towards Commercial Purpose Cielo
Dan Persfull Offline
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The regulation does not define "primary purpose" that I am aware of.

I would speculate most of us use the 50/50 rule. If at least 50% of the proceeds are for a consumer purpose then the purpose is considered consumer and disclosed as such.
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#2243383 - 09/30/20 06:46 PM Re: Some Funds Towards Commercial Purpose Cielo
Cielo Offline
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John: Indeed...I was pretty dumbfounded at the LO's response

I think based on the (lack of) information that was provided from the LO, I could report as a consumer cash out refinance, and argue that the majority of proceeds ($200K) are going towards the refinancing of a primary dwelling - a consumer purpose. The cash out ($20K) for the "property purchase" with the borrower's work colleagues seems commercial. The borrower is a doctor, and it would seem more reasonable for that property to be a commercial building rather than a dwelling. Does that reasoning seem appropriate? I do have the email conversation with the LO saying he does not know of the type of property being purchased.

I appreciate all the responses!

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