We have a HELOC that when originated was the primary residence. Now the property is rental and the owners no longer live there. Now the Loan Officer wants to do a commercial loan to pay off the HELOC and use the same property, with the purpose of the new commercial loan “to payoff consumer HELOC”. I am thinking the purpose needs to be to refinance the property. Does it matter what the purpose is? Can they go from commercial to consumer?

If the ownership is the same, it would be a refinance.

Commercial and consumer are departments within a bank. "Purpose" is generally what triggers consumer regulations - not where the bank originates a loan from.

There should be some concern that the property was changed from owner occupied to rental without triggering a condition in the note/mortgage, especially if there was a change without notification of the lender. In many cases when that happens, the loan is callable.

If he's paying of the HELOC, which was consumer purpose, the new loan will also be 'consumer purpose'. Occupancy or use of a home is meaningless when it comes to determining 'purpose'.

Commercial to consumer typically happens when you make a loan to a business and the business dissolves for whatever reason, and the person, at time of refinance, is going to be paying back with personal income.

RRJ, I agree, but if the borrower has multiple rental properties, it is possible that it might not be consumer purpose. The bank would have to determine that via OSC 1026.3(a)3.

How does having multiple rentals change the purpose of the HELOC?

It appears he is simply refinancing a consumer debt that will now be secured by business assets. That does not change the purpose regardless how many rentals he has.

I'll harmonize with the rest of the choir on this tune. It was a consumer-purpose loan and that has not changed.