guidance line of credit

Occasionally our bank will approve/deny a commercial request for a closed end guidance line of credit and sometimes they have the purpose of purchasing rental dwellings. The requests are fully underwritten and typically receive a commitment letter. No property has been identified at application but the request state that the rental property(ies) will eventually secure the loan. Does this mean we have a preapproval program? If so, does the program have to be for both commercial and consumer loans or can it remain available only for commercial requests? I'd appreciate any input on this.

Just so I am understanding this situation...So there is no closing until a property is identified?

That is correct. There will be no closing on any of the funds until a property is identified and the appraisal is completed, etc. Borrower may be approved for up to XX dollars for the purpose of buying residential real estate. The property has not been identified at the time the guidance line is approved.

Do these have to be treated as a preapproval when they close? What if the borrower doesn't actually use the guidance line or doesn't use all of it?

I'd appreciate input. I'm dealing with examiners on this.

A guidance line would not be a pre-approval IMHO. The borrower has asked you to approve them up to a certain limit and each advance made will be secured by the property being purchased within the line. You have approved a loan request, not a pre-approval request.

The guidance line would not be reportable but each note executed for the purchase of a dwelling would be.

^^^ditto what Dan said. This is the way we have treated the couple that we have had.

FWIW, you can't geocode till they tell you the property securing the loan. And for all the other reasons you mentioned, the LOC is not reportable, the individual loans under the line are.

Follow up question to the actual (HMDA) reporting of the loan once it closes. What should the application date be? The date the borrower requested the Guidance Line or the date the borrower notified us of their intention to proceed to closing on an identified home?

Each request is a loan in itself therefore IMO the application date for that specific request would be the date it was made.

Wow....thanks, Dan, for your speedy response!

Do you mind answering another question about the GLOC - I'm confusing myself on these!

We approved the GLOC. Then the borrower "attempted" to purchase a home so the closing process was essentially initiated. There were sink hole and other issues with the property so we never closed the loan. Still not reportable?

When we did guidance lines, which are a PITA, we would report the disposition of "each" documented loan request.

Makes sense. Thank you so much for your help!