HELOCs & investment property

Posted By: Shopgirl

HELOCs & investment property - 07/03/08 12:51 PM

We tend to do alot of lines of credit where the purpose is to purchase investment property for resell and the loan is secured by the investment property. I have always told the lenders that they need to key these as HELOCs in order to get the HELOC disclosures as referenced in 226.5b (Requirements for Home Equity Plans). However, I have just learned that our bank POLICY has been updated somewhere along the line that states HELOCs are only available for primary and secondary residence. They can still do lines of credit for investment property but not as HELOCs. But, I'm confused in that if the Reg states that these are to be treated as HELOC's then how do you disclose it not as a HELOC and get by?
Posted By: Dan Persfull

Re: HELOCs & investment property - 07/03/08 01:12 PM

Business purpose loans are not subject to Reg. Z and if these are truly business purpose loans you don't want them booked using your HELOC agreement due to the restrictions that are placed on suspending or reducing the line
Posted By: Many Hats

Re: HELOCs & investment property - 07/03/08 01:25 PM

We used to do them as HELOCs too, but as Dan said they really are business purpose loans, so now we do them in our commercial loan dept. as commercial lines of credit.

When we first learned of this, lenders were upset b/c they thought that would affect their ability to get the biz since they were written as commercial lines (since HELOCs often had better pricing and terms), but soon after, we heard that alot of our competitors were also changing their guidelines, so it no longer became an issue.
Posted By: Shopgirl

Re: HELOCs & investment property - 07/03/08 02:18 PM

Thanks Dan and Many Hats. I do appreciate the feedback. But I guess that we have taken the stance (maybe we need to change) that to include it as a business purpose loan, we looked to the relationship of the borrowers primary occupation to the acquisition and did these type of activities provide at least 50% of their income. If the borrower was in the buying and selling of homes as their occupation, then we treated it as business purpose. However if the borrower was a school teacher who is buying this property as investment, and typically doesn't do this type of investment, then we would treat it as consumer. I guess this is where we are getting stumped. Are you saying that we can treat any purchase of a dwelling by anyone for resale could be treated as business purpose?
Posted By: rlcarey

Re: HELOCs & investment property - 07/04/08 03:47 AM

IMHO - You are doing it correctly. Reg Z addresses rental properties directly, but if these are investment properties, then the business purpose test is the correct approach.
Posted By: RR Joker

Re: HELOCs & investment property - 07/07/08 01:59 PM

Shopgirl, FWIW, we handle ours the exact same way to determine business or personal on these splash and dash-type loans.
Posted By: Shopgirl

Re: HELOCs & investment property - 07/10/08 12:41 PM

Just a quick question that hopefully will get a quick response.........RR joker and Randy.......so, if you code these as consumer loans, are they reported as HELOC's?