Soft second lien bond loans - REPORTABLE?

Posted By: Compliance Chick

Soft second lien bond loans - REPORTABLE? - 02/26/15 03:44 PM

In connection with a first mortgage, the borrower qualifies for a second lien usually from a local housing authority. In all cases my bank has the final credit decision.

scenerio 1: repayment starts immediatley. There could be interest or it could be straight repayment of the pricipal without interst. There is a mortgage for the second in the name of the housing authority.

scenerio 2: repayment starts immediatley. There could be interest or it could be straight repayment of the pricipal without interst. There is a deed of trust for the second in the name of the housing authority.

scenerio 3: no monthly payments. repoayment is only required if the house is sold, the first mortgage is refinanced or the first mortgage is paid in full.
Posted By: Nico

Re: Soft second lien bond loans - REPORTABLE? - 02/26/15 05:56 PM

We are working on the same issue. We have decided that scenarios 1 and 2 are reportable because a)they meet the purchase purpose test; b)with a recorded mortgage or DOT, they meet the lien test; and c)we make the credit decision.

The jury is still out on scenario 3.
Posted By: Dan Persfull

Re: Soft second lien bond loans - REPORTABLE? - 02/26/15 06:07 PM

Nico - if you consider 1 & 2 reportable because they are dwelling secured loans for the purpose of purchasing a dwelling then I'm curious why the jury would still be out on 3? 3 is a dwelling secured loan for the purpose of purchasing a dwelling. The only difference between 3 and 1 & 2 is that 3 doesn't have a monthly payment schedule.

I would agree these are reportable "down payment" loans but as a caveat I haven't dealt with these housing authority loans.
Posted By: Nico

Re: Soft second lien bond loans - REPORTABLE? - 02/26/15 06:17 PM

On my first post, I've apparently decided to respond to a member of my own compliance team. Haha!
There is so little discussion about this online, and it seemed so fortuitous to find this post right when I needed to discuss this. I should have realized it was too synchronous to not be related.

Dan, we are questioning the lien test for scenario 3 because repayment is required only under certain circumstances. If those circumstances are not met, then the loan is forgiven.
Posted By: Dan Persfull

Re: Soft second lien bond loans - REPORTABLE? - 02/26/15 07:15 PM

Isn't the loan secured by a lien on the dwelling when it's made?

Whether the loan has to be repaid due to one of the triggering events happening or if it is forgiven does not IMO affect the purpose of the loan. I also would not consider it a temporary loan.

As I've said I haven't dealt with these housing authority loans before. Hopefully someone with experience will chime in with their comments. But for now I would consider them reportable.
Posted By: Brooks_ish

Re: Soft second lien bond loans - REPORTABLE? - 09/25/19 09:13 AM

I know this is an old post but I wanted to revisit and see how people were reporting their bond loan with the changes for HMDA 2018. For example are they being reported a balloon payment with a loan term of 1? Are there any other special reporting you are doing for them like other non negative amortizing feature? We only report a dozen or so bond loans a years so we don’t deal with them much.