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#509308 - 03/07/06 03:16 PM
RESPA - is this temp. financing?
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Member
Joined: Jan 2006
Posts: 90
Nebraska
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We have an in-house loan to purchase a home, 12 month term with 30 year amortization. Interest and principal payments are due monthly. The customer is hoping to refinance in a year and have the loan sold to the secondary market. Is this temporary financing? Does RESPA apply? Thank you.
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#509309 - 03/07/06 03:22 PM
Re: RESPA - is this temp. financing?
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100 Club
Joined: Jul 2004
Posts: 135
Beatrice, NE
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Temporary financing is < 2 years
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#509310 - 03/07/06 03:32 PM
Re: RESPA - is this temp. financing?
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Member
Joined: Jan 2006
Posts: 90
Nebraska
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Does the temporary financing exemption apply to Home Purchases? I know that it specifically addresses construction loans. Also, is the only definition of temporary financing (per RESPA) that the term is less than two years?
Thank you.
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#509311 - 03/07/06 03:36 PM
Re: RESPA - is this temp. financing?
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Power Poster
Joined: Oct 2000
Posts: 5,991
Soaring over Georgia
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Quote:
Temporary financing is < 2 years
I don't necessarily agree. "Temporary financing" is a term used in both RESPA (HUD Reg X) and HMDA (FRB Reg C). In neither place is the term defined, but rather examples are given such as construction lending and bridge loans. RESPA does say that a construction loan (other than to a bona fide builder) with a term of 2 years or more does not qualify for the construction loan exemption. But that doesn't mean that any loan with a term of less than 2 years does qualify. In fact, at least for HMDA, the FFIEC just recently clarified that loans with even shorter terms such as "Splash and Dash" loans would not be considered temporary financing.
However, given that your loan is for a term of one year, is for purchasing the property and the expected source of repayment of the loan is a refinance to a more permanent loan prior to that maturity, I would say that it does qualify as temporary financing under both RESPA and HMDA.
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Jim Bedsole, CRCM, CBA, CFSA, CAFP My posts - my opinions
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#509312 - 03/07/06 03:44 PM
Re: RESPA - is this temp. financing?
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Member
Joined: Jan 2006
Posts: 90
Nebraska
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#509313 - 03/07/06 04:30 PM
Re: RESPA - is this temp. financing?
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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And I'm a bit on the other side of the fence from MB because it is amortized with P&I payments until and IF such other arrangements happen...I would not call it temp financing.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#509314 - 03/07/06 05:34 PM
Re: RESPA - is this temp. financing?
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Member
Joined: Jan 2006
Posts: 90
Nebraska
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Food for thought. Thanks everyone.
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#509316 - 03/07/06 06:57 PM
Re: RESPA - is this temp. financing?
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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To play devil's advocate.....are you then saying a 1, 3 or 5 year balloon mortgage note would be temporary financing? I would venture a guess that at least 95% of these loans rollover into other financing.
PS. It sounds to me the original poster has a 1 year balloon note.
Last edited by Dan Persfull; 03/07/06 07:00 PM.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#509317 - 03/07/06 07:16 PM
Re: RESPA - is this temp. financing?
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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That's the reasoning behind my post, Dan. Thanks for putting it a little different way. Generally, anytime we are dealing in repayment other than ordinary income, we look at whether or not temp financing applies. But if we have an amortizing loan with a balloon at maturity, we do not allow temp financing exemptions. Really, nothing about our temporary financing definition has changed other than the "splash and dash" change. That would be the one exception to our general rule!
_________________________
My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#509318 - 03/08/06 04:33 PM
Re: RESPA - is this temp. financing?
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Member
Joined: Jan 2006
Posts: 90
Nebraska
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#509321 - 03/09/06 02:03 PM
Re: RESPA - is this temp. financing?
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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FWIW I agree with David.
I've always look at it this way. If you have set the term of the loan to have principal and interest payments, then you have set up a repayment schedule for that loan and it is not temporary. Basically what you are doing is setting up a balloon mortgage, in your case a 3 year balloon. To the best of knowledge balloon mortgages do not qualify for the temporary financing exemption.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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