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#987344 - 07/03/08 12:51 PM HELOCs & investment property
Shopgirl Offline
Diamond Poster
Joined: Aug 2003
Posts: 1,264
Southeast
We tend to do alot of lines of credit where the purpose is to purchase investment property for resell and the loan is secured by the investment property. I have always told the lenders that they need to key these as HELOCs in order to get the HELOC disclosures as referenced in 226.5b (Requirements for Home Equity Plans). However, I have just learned that our bank POLICY has been updated somewhere along the line that states HELOCs are only available for primary and secondary residence. They can still do lines of credit for investment property but not as HELOCs. But, I'm confused in that if the Reg states that these are to be treated as HELOC's then how do you disclose it not as a HELOC and get by?

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#987361 - 07/03/08 01:12 PM Re: HELOCs & investment property Shopgirl
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,366
Bloomington, IN
Business purpose loans are not subject to Reg. Z and if these are truly business purpose loans you don't want them booked using your HELOC agreement due to the restrictions that are placed on suspending or reducing the line
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#987374 - 07/03/08 01:25 PM Re: HELOCs & investment property Dan Persfull
Many Hats Offline
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Joined: May 2008
Posts: 915
Orlando, FL
We used to do them as HELOCs too, but as Dan said they really are business purpose loans, so now we do them in our commercial loan dept. as commercial lines of credit.

When we first learned of this, lenders were upset b/c they thought that would affect their ability to get the biz since they were written as commercial lines (since HELOCs often had better pricing and terms), but soon after, we heard that alot of our competitors were also changing their guidelines, so it no longer became an issue.

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#987459 - 07/03/08 02:18 PM Re: HELOCs & investment property Many Hats
Shopgirl Offline
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Joined: Aug 2003
Posts: 1,264
Southeast
Thanks Dan and Many Hats. I do appreciate the feedback. But I guess that we have taken the stance (maybe we need to change) that to include it as a business purpose loan, we looked to the relationship of the borrowers primary occupation to the acquisition and did these type of activities provide at least 50% of their income. If the borrower was in the buying and selling of homes as their occupation, then we treated it as business purpose. However if the borrower was a school teacher who is buying this property as investment, and typically doesn't do this type of investment, then we would treat it as consumer. I guess this is where we are getting stumped. Are you saying that we can treat any purchase of a dwelling by anyone for resale could be treated as business purpose?

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#988150 - 07/04/08 03:47 AM Re: HELOCs & investment property Shopgirl
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 76,979
Galveston, TX
IMHO - You are doing it correctly. Reg Z addresses rental properties directly, but if these are investment properties, then the business purpose test is the correct approach.
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#988419 - 07/07/08 01:59 PM Re: HELOCs & investment property rlcarey
RR Joker Offline
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RR Joker
Joined: Nov 2002
Posts: 20,643
The Swamp
Shopgirl, FWIW, we handle ours the exact same way to determine business or personal on these splash and dash-type loans.
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#991760 - 07/10/08 12:41 PM Re: HELOCs & investment property RR Joker
Shopgirl Offline
Diamond Poster
Joined: Aug 2003
Posts: 1,264
Southeast
Just a quick question that hopefully will get a quick response.........RR joker and Randy.......so, if you code these as consumer loans, are they reported as HELOC's?

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