Customer is not able to sell his house for what he would like. Customer is moving in with a friend. He is wanting to refinance his old house and convert to a rental. Loan will be under the individuals name. Customer does not have any other rentals and is not in the business of managing rentals. My take is if he is refinancing a personal loan and he is not in the rental business that this is a consumer loan. The one item that is still bothering me is the non-owner occupied rental exemption. Business or Consumer purpose? Exempt from RESPA?

Look to the commentary of Reg.Z Section .3(a) Number 4. It gives an automatic business exemption if the loan is to acquire, improve, or maintain a non-owner occupied rental. I would consider this loan to maintain a non-owner occupied rental and therefore business purpose.

If you want to be conservative and treat as a consumer loan then there is no harm in giving Reg.Z and REPSA disclosures unless you're trying to close quickly.

A downside to not treating as business purpose is that the bank will have a rental dependent loan in portfolio that is not correctly underwritten and risk rated for the business purpose.