Tricky Reg Z Question

Posted By: SouthoftheBorder

Tricky Reg Z Question - 05/28/03 04:16 PM

Hello all - we have an individual that is buying a house for his estranged wife - short term - 6 months - loan will be paid off when divorce is final. The husband (only) is applying for the loan, but the wife (only) will be the legal owner. Would this be a "consumer purpose" loan"....I know it's not HMDA reportable and is subject to RESPA, but the Reg Z thing has me baffled......
Posted By: David Dickinson

Re: Tricky Reg Z Question - 05/28/03 04:21 PM

Why would it be subject to RESPA but not TIL?

You could treat this as a non-owner occupied property, like a secondary house. I can't see calling this a business purpose.

I think that TIL does apply.
Posted By: Deena

Re: Tricky Reg Z Question - 05/28/03 04:40 PM

I agree with David. I don't see how this is anything other than a consumer purpose loan and I would say Reg Z definitely applies.
Posted By: SouthoftheBorder

Re: Tricky Reg Z Question - 05/28/03 04:49 PM

Not so tricky after all!!!!!!
Thanks
Posted By: RVFlyboy

Re: Tricky Reg Z Question - 05/28/03 09:01 PM

Doesn't RESPA have an exception for temporary financing? This sure sounds like it might be temporary financing to me, even with my more stringent interpretation of REPSA than Lucy Griffin's.
Posted By: Princess Romeo

Re: Tricky Reg Z Question - 05/29/03 01:36 AM

RESPA - 25 CFR section 3500.5(b)(3) contains an exception for temporary financing.

However, like the rest of RESPA, this section is poorly worded as it only provides construction loans as an EXAMPLE of temporary financing without ever defining what else is considered temporary financing.
Posted By: bean

Re: Tricky Reg Z Question - 05/29/03 12:31 PM

Just out of wanting to know for my own piece of mind, why wouldn't this be HMDA reportable? (Home Purchase)

Thanks

P.S. I realize I just jumped in, but I want to make sure that I have a good handle on HMDA.
Posted By: Dan Persfull

Re: Tricky Reg Z Question - 05/29/03 01:54 PM

1. Definitely Consumer and TIL applies.
2. I vote with Jim being exempt from RESPA based on the "temeporary nature" of the loan.
3. (for Bean) Temp Financing is not reported under HMDA.
Posted By: Anonymous

Re: Tricky Reg Z Question - 05/29/03 02:19 PM

I thought the temporary exemption under RESPA did not apply in cases where there was a transfer of title????
Posted By: Dan Persfull

Re: Tricky Reg Z Question - 05/29/03 02:56 PM

Quote:

I thought the temporary exemption under RESPA did not apply in cases where there was a transfer of title????



Good point but that section refers to a construction loan The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. , from the description of this transaction it's not a construction loan and I think it could fall under the "bridge" loan exemption. Just MO.
Posted By: SouthoftheBorder

Re: Tricky Reg Z Question - 05/29/03 05:12 PM

I interpret "OR is used to finance transfer of title to first user"......as NOT exempt from RESPA

LOVE THESE REGs
Posted By: Dan Persfull

Re: Tricky Reg Z Question - 05/29/03 06:19 PM

Quote:

I interpret "OR is used to finance transfer of title to first user"......as NOT exempt from RESPA

LOVE THESE REGs



Well, let's see if this another one of my interpretations that I'm out on my own on.

The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user

This, IMO, specifically refers to a "construction" loan that will be used, OR may be converted to permanent financing, OR used to transfer title.

If the "or transfer title" was meant to apply to any loan then there would be no such thing as a temporary loan under RESPA, other than the Bridge Loan that is specifically mentioned and exempt, if any of the proceeds were to purchase the property.

I hate it when everything I copy doesn't paste, I meant to add the following:

The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as permanent financing.

OR

The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan may be converted to permanent financing by the same lender.

OR

The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used to transfer title to the first user.
Posted By: Deena

Re: Tricky Reg Z Question - 05/29/03 06:50 PM

You're not on your own on this one, Dan; I agree with you. IMO, the transfer of title provision applies in the context of a construction loan only and this loan would fall under the bridge loan exemption.
Posted By: rlcarey

Re: Tricky Reg Z Question - 05/29/03 09:33 PM

Dan,

I guess I have to take issue with you on this one. A transfer of title to the first user I believe is the overriding factor.

You think have to read the whole section and take it into context. The exemption for temporary financing only uses a construction loan as an example as that is the most common type of temporary financing. The main idea behind RESPA is that all costs be disclosed to a person when they buy a house. If you can by a house on a short term note and escape the disclosures, why doesn't everyone do it?

Posted By: Dan Persfull

Re: Tricky Reg Z Question - 05/29/03 10:11 PM

Randy, I see your point but let me ask this. If a person comes in and says I have my home sold and the closing is in 60 days and here's all the docmentation. I need to borrow X to buy this house (the loan will be secured by the house to be purchased) and I will pay it in 65 days. I would consider this temp financing and not subject to RESPA. However,if the house was to be paid off by a bonus (ordinary income) to be received in 60 days I would not consider it temp financing and subject to RESPA.

Am I totally on temp financing?
Posted By: rlcarey

Re: Tricky Reg Z Question - 05/29/03 11:09 PM

OK Dan, after much research, I have determined that this section is very poorly written (by DUH, of course) and I can't find anything to disprove your interpretation. I would like to get my hands on the supplimental materials out of the Federal Register for when they originally published this section as the section by section analysis might shed more light. Unfortunately, I don't have the FRs that far back and they are not on the web. Then again it would have been written by HUD........

I withdraw my comments.
Posted By: HRH Dawnie

Re: Tricky Reg Z Question - 05/29/03 11:18 PM

Can someone clear up my brain on this one? Why are we saying it's "Temporary" financing. We don't know that the wife is going to be paying anything for the home...this could be the only financing involved, since the divorce may be paying it off in cash...

Not to argue I'm just wondering if there's an assumption that she's getting financing, thereby making it more of a temp/or bridge loan deal, verses a short term loan to purchase a home...
Posted By: SouthoftheBorder

Re: Tricky Reg Z Question - 05/30/03 03:53 PM

The loan will be paid off when the divorce is settled.
(had to dig deep for the sunglasses today...been 23 days without sun)
Posted By: Deena

Re: Tricky Reg Z Question - 05/30/03 05:15 PM

In that case, since this is just a short term loan, I don't believe the RESPA and HMDA exemptions for temporary financing would apply and the loan would be covered by both regulations - as well as Reg Z, which was your original question.
Posted By: Dan Persfull

Re: Tricky Reg Z Question - 05/30/03 05:21 PM

Dawnie, you brought up a good point. Another example of "assume".

How will the loan be paid when the divorce is final?

If paid off from "settlement funds", then I agree with Deena that it would not be temp financing and subject to the regs.

If the wife will obtain her own financing after the divorce is final then I would consider it temp financing and not subject to RESPA.