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#2121531 - 03/10/17 07:23 PM Examples of Temporary Financing
crcmnot Offline
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The CFPB's HMDA Small Entity Compliance Guide on page 29 lists examples of what does and does not meet the definition of Temporary Financing as of 1/1/2018. One example reads:

Ficus Bank extends a bridge or swing loan to finance a borrower’s down payment for a home purchase. The borrower will pay off the bridge or swing loan with funds from the sale of his or her existing home and obtain permanent financing from Ficus Bank at that time. The bridge or swing loan is excluded as temporary financing

I may be misinterpreting how this reads. Does this mean that this example is excluded from the definition of 'temporary financing' and is therefore HMDA reportable or does it mean that it is excluded from HMDA reporting because it IS a temporary financing example. The words 'excluded as temporary financing' are confusing me.

Thank you.

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#2121564 - 03/10/17 08:15 PM Re: Examples of Temporary Financing crcmnot
Dan Persfull Offline
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"The bridge or swing loan is excluded from reporting as temporary financing"
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#2121605 - 03/10/17 10:32 PM Re: Examples of Temporary Financing crcmnot
crcmnot Offline
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The word 'as' in the sentence 'as temporary financing' is poorly placed IMO or maybe they could have worded it like you did, Dan, "....is excluded from reporting" and left out the words '...as temporary financing'. How that sentence is currently written can be construed to mean that the example is excluded from the 'temporary financing' definition rather than excluding it from reporting for HMDA purposes.

Sometimes one word can mean the difference between compliance and a violation so I wanted to make sure I understood the example they were giving.

Thanks Dan!

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#2121824 - 03/14/17 01:25 AM Re: Examples of Temporary Financing crcmnot
Bville Offline
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I have never understood that example. It sounds to me like the bridge loan was just for the down payment. Then, when the house sold they paid the bridge loan off and took out a loan for permanent financing. I don't understand what the new permanent financing loan was for. When the house was purchased didn't they have to finance the entire house at that time?

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#2121841 - 03/14/17 01:43 PM Re: Examples of Temporary Financing crcmnot
Dan Persfull Offline
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In their example this is the presumed sequence of events.

Borrower obtains bridge loan for the down payment to purchase the new home. This bridge loan is secured by the existing residence.

Borrower takes down payment from bridge loan and obtains permanent financing on the new home.

Existing home sells. Borrower pays off the bridge loan.

The down payment loan, because it is a bridge loan is exempt from reporting.

I posted in another thread but in a nutshell a bridge loan is intended to bridge the gap between obtaining the down payment for a new home and obtaining permanent financing for that home by taking an equity loan in the existing home until it sells. A bridge loan, IMO, was never meant to finance the full purchase of the new home and then be repaid when the existing home sells. In that scenario the loan is not bridging any gaps in obtaining financing. It is simply a short term loan to be paid off with the sell of an asset. In this case the existing home.
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#2121882 - 03/14/17 03:58 PM Re: Examples of Temporary Financing crcmnot
RR Joker Offline
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I don't think so, Dan. Read it again...it is kinda odd, the example they give. For it to be temporary, it has to be replaced with perm financing...the timeline they give is not what you have outlined above...but is missing the biggest part of the picture, IMHO because exactly what is happening during the gap...no seller is going to wait around on the end-game like they have portrayed in that example.

'bridge' loan for down payment to be paid with sale of current home and THEN permanent financing for new home is obtained.

I believe what they INTENDED was...an equity loan was made on the current home to enable them to purchase the new home. Once the current home sells and the equity loan is paid, permanent financing of the net amount will be done on the new home.

The way I see most bridges done is by taking a lien of current and future home in lieu of a DP. Once current home sells, net mortgage is financed longer term.

Realtors hate it because of the ROR aspect.

The rare occasions where they intend [hope] to pay the new home in full, I consider short-term, not temp
Last edited by RR Joker; 03/14/17 04:00 PM.
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#2121941 - 03/14/17 07:21 PM Re: Examples of Temporary Financing crcmnot
David Dickinson Offline
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"Bridge" is not defined, but I bet if you ask 100 loan officers, you'll get 100 to say it's the "gap financing between the purchase of the new and the sell of the old".
Last edited by David Dickinson; 03/14/17 07:51 PM.
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#2121942 - 03/14/17 07:22 PM Re: Examples of Temporary Financing crcmnot
Dan Persfull Offline
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Bloomington, IN
Their wording in the example is poor but the sequence of events I described is my presumption of the example. Not saying I'm correct it's just how I interpret it.

The sequence you posted would also qualify as a bridge loan and be exempt since it is being replaced with longer term financing.

This is why the CFPB should get off their asses and give the industry a definition of what they consider a bridge loan so we are all working with apples.
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#2121947 - 03/14/17 07:34 PM Re: Examples of Temporary Financing crcmnot
RR Joker Offline
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Dan, look at this though and see if you see what I see missing:

Ficus Bank extends a bridge or swing loan to finance a borrower’s down payment for a home purchase Loan made for 'down payment'. The borrower will pay off the bridge or swing loan with funds from the sale of his or her existing home Will be paid off upon sale of existing home and obtain permanent financing from Ficus Bank at that time. So perm financing doesn't happen until home is sold.The bridge or swing loan is excluded as temporary financing

So what, exactly, is happening in the meantime while the existing home sits on the market? They left that part out. They only mention a loan for the down payment. No additional loan happens to pay that out until the current home sells. I think they meant it to be stated differently, because as they have state it, the so called 'bridge loan' is only for a down payment and will be paid in full...which would not be temporary. But no way is the home to be purchased just sitting there waiting...they missed that loan, or meant it to be part of the original loan, taking both dwellings as in 'lieu of a downpayment
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