We are making a loan to convert a construction loan into permanent financing. Customer requested a 1 year interest only note. Customer plans on paying principal payments as they have the money and plan to have loan paid off in the 1 year time frame. We are reporting for HMDA as this is intended to be the only financing. My question is does Respa apply due to loan being less than 2 years?

Section 3500.5(b)(3) of RESPA states:
A construction loan is considered "temporary financing." However, 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.

The exemption for temporary financing also 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.

laf0915, the key to the quote from BC is any construction loan . Your loan is not a construction loan and I do not see it as temporary financing. IMO RESPA would apply.

If we are doing a loan to refinance an existing 1st and 2nd lien, with cash out for home improvement, would the temporary financing exemption apply if borrowers are seeking financing through another bank to pay off at end of 1 year term?

Or does the reference to temporary financing strictly apply to construction loans?

I know it also refers to "bridge loans" or swing loans" but the reg does not offer a definition of either type of loan. I feel RESPA would apply but unsure of if this falls into the exemption.

Any help on previous question is appreciated. Thanks.

Good question - guess that's why no one has answered it yet. I don't believe RESPA's temporary financing exemption is exclusive to construction loans. I think it can also be applied to situations where you have 2 phase financing - like what you have applied. However, I don't know if I have seen lenders apply the exemption in this situation.

I agree, the temporary exemption is not limited to construction loans only. Based on the description I would opine they have a temporary loan. The loan will be repaid from other financing arrangements.