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#38113 - 10/21/02 07:24 PM Construction Loans & Affiliated Bus. Arrangement
NMB Offline
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Joined: Jun 2002
Posts: 255
Southeast Michigan
I would appreciate reassurance - We have a mortgage company affiliate (Employees of the bank are the loan originators for bank products as well as mortgage company products.) so we give an affiliated business arrangement when a mortgage is requested.

Since construction loans are exempt from RESPA, they are exempt from the AfBA also, right?
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Lending Compliance
#38114 - 10/21/02 08:42 PM Re: Construction Loans & Affiliated Bus. Arrangement
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 80,358
Galveston, TX
If the loan is temporary financing, it is exempt from RESPA and therefor, the AfBA would not apply.
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#38115 - 10/21/02 09:49 PM Re: Construction Loans & Affiliated Bus. Arrangement
NMB Offline
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Joined: Jun 2002
Posts: 255
Southeast Michigan
Thanks.
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#38116 - 10/22/02 12:58 PM Re: Construction Loans & Affiliated Bus. Arrangement
JulieB Offline
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JulieB
Joined: Apr 2002
Posts: 38
SC
Not all construction loans are exempt from RESPA:

(3) 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.

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#38117 - 10/22/02 05:39 PM Re: Construction Loans & Affiliated Bus. Arrangement
NMB Offline
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Joined: Jun 2002
Posts: 255
Southeast Michigan
Thanks, Julie. These are construction-phase-only loans, less than 2 year maturity, with separate end financing at maturity. It just seemed wierd that we need to disclose our relationship with our affiliate in one situation but not the other. But then, when did it become a requirement that a regulation be logical?
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#38118 - 10/22/02 11:10 PM Re: Construction Loans & Affiliated Bus. Arrangement
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
We need to look more closely at the termporary financing exemption:
(3) 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 the "construction only" loan finances the transfer of title, it doesn't matter that the loan is temporary, RESPA still applies.
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http://www.bankerscompliance.com

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#38119 - 10/22/02 11:33 PM Re: Construction Loans & Affiliated Bus. Arrangement
NMB Offline
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Joined: Jun 2002
Posts: 255
Southeast Michigan
Thanks. The "transfer of title" issue is one that I need to look into further. We did construction loans so infrequently in the past that they got very little scrutiny. With this year's heavy volume, I am finally giving our procedures a thorough review.
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