Short-term balloon payment

Posted By: dmk124

Short-term balloon payment - 07/09/21 09:07 PM

Would this be considered HMDA reportable?
A total 6 months loan (5 months fixed interest only with a balloon payment on month 6)
Posted By: raitchjay

Re: Short-term balloon payment - 07/09/21 09:10 PM

What are the long term plans for repayment? What's the plan in 6 months? Borrower walks in with a big wad of cash (possibly from the sale of the home) to pay off the loan (if so, then your loan is reportable)? Or is the plan to refinance the loan into a much longer term in 6 months (exempt as temporary financing)? How long or short the loan term is is not the deciding factor for whether the loan is temporary or not. Loans designed to be replaced by financing of a longer term are exempt as temporary financing.
Posted By: Andy_Z

Re: Short-term balloon payment - 07/09/21 10:21 PM

Agree with jay, you don't ask enough of a question and you must know the long-term plan. What you describe could be construction, or a flip. One may be satisfied with permanent financing while the other a sale.

https://www.bankersonline.com/regulations/12-1003-003#c
Posted By: dmk124

Re: Short-term balloon payment - 07/12/21 04:12 PM

I agree with you both, at the moment the answer is unknown. The borrower isn't sure if they want to fix up and flip or just do a quick sale. So at the moment I think the plan is to put current home on market and see what happens, in the meantime they are making renovations here and there.
Posted By: raitchjay

Re: Short-term balloon payment - 07/12/21 04:45 PM

Things sound murky......it sounds like regardless, the plan is to sell the home....correct?
Posted By: hmdagal

Re: Short-term balloon payment - 07/12/21 06:09 PM

Without clear information that the loan is NOT reportable, I would report it.
Posted By: John Burnett

Re: Short-term balloon payment - 07/12/21 06:22 PM

Most lenders don't make loans without knowing what the borrower's plan for repayment is.

If the borrower's plan is to fix and flip or simply to flip it without renovations, with a refinancing only if "Plan A" doesn't pan out, you report it because "Plan A" doesn't involve a refinance into a perm loan. If Plan A is to refi to a perm loan after six months, you don't report it, and, if the borrower changes their mind and sells the property and pays the loan off without refinancing it, you still don't report it.
Posted By: dmk124

Re: Short-term balloon payment - 07/12/21 08:31 PM

Thank you everyone. I was able to get clarification that it is a bridge loan, therefore not HMDA reportable.
Posted By: raitchjay

Re: Short-term balloon payment - 07/12/21 08:40 PM

Not to belabor the point....but bridge loans (which different people define in different ways) are no longer expressly exempt. The key point is still whether or not long term financing will be needed. The example listed below does not mean that ALL bridge loans are automatically exempt. If the sale of the home will pay OFF the loan (and not just pay it down, or pay off the down payment), then it is NOT exempt.
Paragraph 3(c)(3)
1. Temporary financing. Section 1003.3(c)(3) provides that closed-end mortgage loans or open-end lines of credit obtained for temporary financing are excluded transactions. A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. For example:

i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3).
Posted By: raitchjay

Re: Short-term balloon payment - 07/12/21 08:55 PM

And it's sort of odd (at least to me) to be talking about a "bridge" loan on what to this point has sounded like an investment/flip situation.
Posted By: dmk124

Re: Short-term balloon payment - 07/13/21 03:06 PM

Thank you for questioning that, my response was not clear. This will be replaced by permanent financing. They bought a house in location B, secured a loan until they sell their house in location A. They were hoping to make improvements before the sale in order to obtain a greater value. Definitely not a flip or investment property.
Posted By: raitchjay

Re: Short-term balloon payment - 07/13/21 06:01 PM

Oh ok...sorry i misunderstood then.
Posted By: dmk124

Re: Short-term balloon payment - 07/13/21 09:21 PM

Don't be sorry!! I appreciate any help!!!
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