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#30559 - 08/30/02 05:20 PM Temparary Financing
Anonymous
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Temporary financing exemption under RESPA...is a loan to pay taxes of $2,000.00 with a term of less than 2 years with the personal residence of the customer as collateral "out of abundance of caution" elgible for the temporay financing exemption.

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#30560 - 08/30/02 06:08 PM Re: Temparary Financing
Dan Persfull Offline
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Yes. RESPA defines termporary fiancing as a loan with a term of less than 2 years.
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#30561 - 08/30/02 07:05 PM Re: Temparary Financing
Anonymous
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Under 3500.5 Coverage of RESPA (3) Temporaty financing. The Reg doesn't refer to just any loan under 2 years, it specifically refers to a construction loan, bridge loan, or swing loan. Yes or No. Where does the defination change to cover other types of loans?

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#30562 - 08/30/02 07:36 PM Re: Temparary Financing
Dave M_TCA Offline
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Wherever my most benevolent em...
Actually, it says Temporary Financing such as a construction loan. It doesn't limit it to just those types.
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#30563 - 08/30/02 08:21 PM Re: Temparary Financing
Dan Persfull Offline
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David is correct, it gives those loan types as examples not as all inclusive. If you are not familiar with Kirchman, go to the following link and then scroll down to their RESPA section. I have found them to be a very good reference source.

http://kirchman.com/comply/compliance_bob_contents.html
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#30564 - 08/30/02 09:47 PM Re: Temparary Financing
Anonymous
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How is the loan to be repaid? Does the borrower expect to sell property or win the lottery and pay the loan off? Or is to be paid from normal income. If there is no source of anticipated income to repay the loan when the ship comes in, then the financing is not temporary.

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#30565 - 08/30/02 10:09 PM Re: Temparary Financing
Dan Persfull Offline
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RESPA defines a loan with a term less then 24 months as tempororary financing. HMDA, on the other hand looks at the repayment source, not the term, to define tempororary financing. In that scenario, I agree with you. In the scenario given, the term is less than 24 months and the money is for taxes, in my opinion, it is not subject RESPA and due to the purpose it is not HMDA. If the money had been for home improvement, I still feel it would not be subject to RESPA, however it would be subject to HMDA as a home improvement loan (providing it was classified as such).
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#30566 - 08/31/02 02:52 AM Re: Temparary Financing
RVFlyboy Offline
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Actually, RESPA does not define "temporary financing". HUD's Reg X implementing RESPA says some things about temporary financing, but still doesn't define the term. Here's what it says:
RESPA applies to all federally related mortgage transactions except...
Temporary financing. Temporary financing, such as a construction loan. The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4- family residential structures for sale or lease), is subject to this part if its term is for two years or more. A ``bridge loan'' or ``swing loan'' in which a lender takes a security interest in otherwise covered 1- to 4-family residential property is not covered by RESPA and this part.

What it's saying is that a construction loan with a term of two years or more is not eligible for this exemption. So a construction loan of less than two years would be exempt as temporary financing (assuming that it was not convertible to permanent financing, etc.). But that doesn't mean that all loans of less than two years are temporary financing, nor does it mean that all loans of two years or more are not temporary financing. It says bridge loans and swing loans are temporary financing regardless of the term of that loan - i.e, a three year bridge loan would still be exempt from RESPA under the temporary financing section.

That all said, I think the loan described would not be considered temporary financing for purposes of RESPA. I think RESPA applies. I think that HMDA does not apply, not because of the term of the loan, but rather because the purpose is not purchase/refinance nor home improvement.
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#30567 - 09/03/02 01:11 PM Re: Temparary Financing
Anonymous
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You need to look at the source of repayment to determine if this is temporary financing. If it is to be repaid in monthly payments, then it is not temporary. However, if it to be repaid from a source such as insurance settlement or hopefully a tax refund, then it would be temporary. Look at the notes in the file from the approving entity, the source of repayment should be documented. I agree this is not HMDA, but may or may not be subject to RESPA.

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#30568 - 09/04/02 05:53 PM Re: Temparary Financing
Anonymous
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The loan is to be repaid in 22 monthly payments with personal income...

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#30569 - 09/04/02 06:32 PM Re: Temparary Financing
RVFlyboy Offline
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That to me is not temporary financing as contemplated by RESPA. I think that RESPA applies. The only way out would be to drop the RE as collateral. It would not be HMDA reportable, though - not because of temporary, but because not home purchase/refi or home improvement.
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#30570 - 09/04/02 10:47 PM Re: Temparary Financing
Lucy Griffin Offline

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This loan is exempt from RESPA. It is a "temporary loan" having a term of less than two years. RESPA pays no attention whatsoever to the source of repayment (just like predatory lenders). The exemption looks only to the term of the loan. The additional discussion applies to construction loans only in order to "clarify" when a construction loan isn't really a temporary loan.

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#30571 - 09/05/02 01:03 PM Re: Temparary Financing
Anonymous
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I think RESPA applies. This is not temporary financing, just a short term with a regular repayment period from personal income. I see nothing temporary about the financing. It is a permanent loan.

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#30572 - 09/05/02 01:03 PM Re: Temparary Financing
RVFlyboy Offline
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Well, if Lucy says it about RESPA, I'm confident that she's right. Color me embarrassed. But for my own education, Lucy, can you show me where in RESPA that is says that any loan with a term of two years or less is exempt as temporary financing? Thanks.
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#30573 - 09/05/02 01:10 PM Re: Temparary Financing
rlcarey Online
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Jim, I hate to say it, but I agree with you on this one. I don't think that this is temporary financing as contemplated by RESPA. The only two year period mentioned is that a construction loan with a term greater than two years would not be considered temporary. Temporary financing also contemplates a future term loan or repayment from other sources, not a fully amortizing loan.
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#30574 - 09/05/02 01:40 PM Re: Temporary Financing
David Dickinson Offline
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I'll stand with Jim on this one (maybe we'll all be embarrassed). I have never understood RESPA to say that all loans of < 2 years are exempt from RESPA. "Temporary" financing is not the same as "short term." BTW, you will not find a definition of temporary financing in HMDA either.

It has always been understood (I agree that this is not found in the regulations) that Temporary financing means:
1. Less than 2 years,
2. Not repaid from ordinary income, and
3. single payment.

Not the term, but the nature.
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#30575 - 09/05/02 01:50 PM Re: Temporary Financing
Dan Persfull Offline
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This has been an interesting discussion. As you can see from my previous posts, I agree with Lucy, and from my short time on this site I have found that usually Lucy’s interpretations are accurate. My bank is FDIC regulated and I proposed this question via email to their SCANS center. They are slow responding, but I will share their response as soon as I receive it.
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#30576 - 09/05/02 06:19 PM Re: Temparary Financing
RVFlyboy Offline
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In reply to:

Jim, I hate to say it, but I agree with you on this one.



Hmmm, how do I take that? On the one hand you might be hating to agree with me because it puts us both on the opposite side from Lucy, which is not an enviable place to be on a compliance issue. On the other hand, you could just hate agreeing with me. I hope it's the former.
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#30577 - 09/05/02 08:15 PM Re: Temparary Financing
rlcarey Online
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Jim, I just hate being caught on the wrong side of the fence, no matter who is standing with me.
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#30578 - 09/05/02 10:51 PM Re: Temparary Financing
Lucy Griffin Offline

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Sorry to be late posting, but I've been tied up all day. I still stand by my answer, but treating it as covered is never a problem. It may be the best approach for the risk averse.

Now for why I think this is exempt. HUD uses the term temporary financing without defining it. Temporary appears to mean two things. First, a loan of less than 2 years, because that is the example provided by HUD by stating that a construction loan for more than 2 years is not exempt. Second, a temporary loan appears to be a loan that will in the long run be replaced by a permanent loan. Thus, construction is the primary example.

I would be cautious to use anything to interpret temporary other than the examples HUD provided. We trip ourselves up that way -- as we do with the co-applicant/co-borrower question. That is why I look only to that paragraph to figure out what it means. That is also the approach used by the court in the Echevarria case.

Now, why should this loan be exempt? The rule and exemption was written in the context of construction loans. But the rule was also written with an eye to when consumers need information. In this situation, I think the exemption fits better than the regulation.

Of course, for the risk-averse, disclosure never hurts.

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#30579 - 09/06/02 01:19 PM Re: Temparary Financing
RVFlyboy Offline
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Just to debate the point a little further (now I'm really treading on shaky ground - please don't strike me with a compliance lightning bolt, Lucy) -

The construction example provided by HUD was to clarify a previous statement that construction loans are exempt as temporary financing. I look at it as a specific exception to the general rule.

General rule: Construction loans are exempt as temporary. Exception: Construction loans with terms of two years or more.

General rule: Other types of temporary loans (not defined) are also exempt. But no exception provided.


In reply to:

I would be cautious to use anything to interpret temporary other than the examples HUD provided. We trip ourselves up that way -- as we do with the co-applicant/co-borrower question. That is why I look only to that paragraph to figure out what it means. That is also the approach used by the court in the Echevarria case.


The only examples HUD gives in this paragraph for temporary financing are construction loans (except if the term is two years or more), bridge loans, and swing loans. And the terms "bridge loans" and "swing loans" are also not defined. But I don't think the example provided in the initial question of a 22-month loan to pay taxes that will be repaid from personal income without a subsequent loan to replace it fall under any of the three examples of temporary financing provided by HUD. It clearly is not a construction loan of any length. Nor is it, in my opinion, a bridge loan or a swing loan. So using the argument used in the Echevarria case that this is the only information that should be used to make a determination of temporary or not, I don't think this is.


In reply to:

Now, why should this loan be exempt? The rule and exemption was written in the context of construction loans. But the rule was also written with an eye to when consumers need information. In this situation, I think the exemption fits better than the regulation.


Why would this borrower need any less information for his 22-month tax financing loan than he would if it were a 25-month tax financing loan?

All of that said, if you were to ask me "Should RESPA apply to this loan?" I would have to answer "No" because I think RESPA was intended to apply to Real Estate purchase and refinance transactions. Unfortunately, HUD being the superb regulation writers they are, they didn't quite get that into the reg that way. Since the courts have to apply the reg as written (e.g., Echevarria), I'd recommend taking the risk-averse course here and heed RESPA for this loan. I agree with Lucy there that this is always an option with RESPA as overdisclosure does not hurt you here.
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#30580 - 09/06/02 09:59 PM Re: Temporary Financing
David Dickinson Offline
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What he said!

Seriously, I believe that RESPA applies to an 18 month home equity loan that is set up with 18 monthly installments and fully amortized. Temporary is a nature, not a term; however, HUD put a cap on the term for some natures (how do you like that). IOW, a construction loan (temporary in nature) of more than 2 years is trumped by HUD to say that it is too long to be temporary. But a short term, fully amortized loan is not temporary. Therefore, RESPA applies.
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#30581 - 09/09/02 03:10 PM Re: Temparary Financing
Dan Persfull Offline
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Bloomington, IN
The folowing was submitted to the FDIC on 9/3/02.

Would you please assist in this matter?

The following question was asked:

Temporary financing exemption under RESPA...is a loan to pay taxes of $2,000.00 with a term of less than 2 years with the personal residence of the customer as collateral "out of abundance of caution" eligible for the temporary financing exemption.

Since the loan is less then 2 years, I feel it is exempt from RESPA. However, do we need to apply the “source of repayment” rule to see if it qualifies for temporary financing under RESPA, or does the less than 2 year term automatically exempt it from RESPA?

Your assistance would be greatly appreciated.

Dan Persfull

I have to bow to the ones who voted RESPA applies.

Jodie Dalton from the Chicago Office of the FDIC telephoned me this morning concerning the above email I sent via their SCANS email. Her answer in a nutshell is RESPA Applies.

This scenario is not temporary financing. You do have to look at the “repayment source” to see whether the loan is temporary or not. She also said a 6-month single payment loan, paying off with personal income is not a temporary loan and is subject to RESPA.

Whether you agree with this or not (I did not), the FDIC is my regulator and I will follow their interpretation.

Dan

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