Is this a temporary loan? A home improvement loan secured by the SFR-PDwelling of 12 mos. to add a room to be followed
by a perm loan of 30 years upon completion. It is interest only for 11 mos. with a balloon due at maturity. Its a first lien.

Is this rehab loan subject to HPML, HPCT based upon APR of 1.50 or more?

How are banks doing rehab/HI loans under these rules?

FYI: Our mortgage dept will be taking out the rehab loan of 12 mos.

It will be subject to TRID and an LE is in the works. Its the ATR/QM/HPML/HPCT rules that are troubling.

thanks.

Because of the use of "such as" in the exceptions to the ATR requirements for short-term loans and the escrow requirements for short-term HPMLs, I believe the loan you're describing will be exempt from the ATR requirements and, if it is an HPML, exempt from the HPML escrow requirements.

If it is an HPML, I don't believe it will be exempt from the special appraisal requirements of 1026.35(c).

The permanent loan will have to comply with ATR requirements and, if it is an HPML, the escrow requirements in 1026.35(b) unless the bank is exempt from those requirements.

John....since the ATR requirements in sec. 43 came in (and if i'm not mistaken, the 'ability to repay' provisions of sec. 35 went away, were usurped by .43, etc.) i've been confused by the temporary financing exemption as it pertains to HPMLs. In what scenarios are loans secured by the borrower's primary residence (and not otherwise exempt from Reg. Z) totally exempt from testing for HPML status because of a temporary financing exemption? In the past (pre-section 43), if a loan met the temporary financing exemption, it was just totally exempt from HPML.

(I guess i would also add that we aren't an escrowing bank, and we try to make nothing but QMs--so the appraisal and escrow exemptions in and of themselves tend to be non-events for my bank.)

There are no exceptions to the HPML definitions. If you make a consumer purpose, closed-end extension of credit secured by the consumer's principal dwelling that trips the APR over APOR limits, it's an HPML, period. The exceptions, if any, are to either the escrow or appraisal requirements. The temporary financing exceptions to the escrow and appraisal requirements aren't identical. For the HPML appraisal requirements, there are exceptions for:

(iv) A transaction to finance the initial construction of a dwelling.

(v) A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of a dwelling intended to become the consumer's principal dwelling.

For the HPML escrow rules, the short-term financing exceptions are:

(B) A transaction to finance the initial construction of a dwelling;

(C) A temporary or "bridge" loan with a loan term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months;

Notice the subtle difference in wording between the two exceptions for "bridge" loans. For appraisals, it's more restrictive.

John, thanks. Am i correct that once upon a time, pre ATR, there WAS a generalized temporary financing exemption from HPML proper?

And am i also correct that if a bank doesn't escrow and only makes QMs (speaking sort of theoretically on that point), then it's all a moot point anyway, as far as HPMLs go?

I think i've taken it that the generalized temporary financing exemption went away because the ability to repay part that was once covered in HPML is now covered in Sec. 43.

Old section 226.35(a)(3), from 2010:

(3) Notwithstanding paragraph (a)(1)
of this section, the term ‘‘higher-priced
mortgage loan’’ does not include a
transaction to finance the initial construction
of a dwelling, a temporary or
‘‘bridge’’ loan with a term of twelve
months or less, such as a loan to purchase
a new dwelling where the consumer
plans to sell a current dwelling
within twelve months, a reverse-mortgage
transaction subject to § 226.33, or a
home equity line of credit subject to
§ 226.5b.

And I agree with your assumption on when and why it disappeared.

Or shoved down into 1026.36(b) -- Escrows.

And yes, if you are exempt from escrows and do only QMs, there's nothing left of an HPML to be concerned about.

Thanks again.