We received a 1003 marked as a 'second home' some time ago and doc'd it out accordingly as a consumer loan covered by TRID. This morning, I was informed by Credit that we would not do this loan as consumer; and that it has to be in the commercial portfolio. (among other differences, the rate will be about 1% higher and not fixed.) This is not a situation I have previously been in the loop on, so I called the LO to find out what was going on. Here are the cliff notes:
-home is the applicants PRIOR home. It is now fully occupied; 365, by the parents of the applicant.
-the applicant is a natural person.
-There is some sort of life estate situation. The applicant is legally obligated to allow the parents to live their the remainder of their life, and per the loan officer, even if they wanted to kick the parents out and rent it out to someone else at full market value; they cannot do so.
-HOWEVER, the parents have been paying rent. (This is what concerned credit and why they are saying that it can't be consumer.) But if they couldn't any more, they would still continue to live there.
-The applicant is not in any way in the real estate business. The applicants income is medical in nature, and the 'rent' from the parents shows at a loss on the tax returns.
-the bank I work at is currently 100% a portfolio lender. We do not enforce any fannie/freddie type rules like distance from primary residence to a secondary; etc.
At my prior employer, we probably would have called it an investment property, but left it on the consumer side of things and stayed under the TRID rule. It definitely does not feel 'business purpose' to me - or the loan officer - but I can sort of see why credit feels that it is, because it IS reported on the tax returns. (and technically, it is NOT owner occupied.) If we say 'no' I will have to write up an AAN for this; and I have no idea on what grounds we would actually be denying it. We have loans we have closed in the past 3 months that are recorded as 'second homes' but are literally 2 miles from the primary. I feel like there is additional guidance about the difference between business purpose and consumer purpose that I am not locating/remembering where is - I seem to remember reviewing something more detailed on this topic back when TRID came out. I've reviewed Reg Z's definition of business purpose and the only thing I'm really seeing is that one of the defining factors is the borrower's statement of purpose for the loan.
Anyone have any thoughts on this?