Posted By: AT
Builder revolving master line - MIRE event? - 02/06/19 11:06 PM
We are trying to determine when a triggering event would occur in the below scenario...
We have some builders with a master revolving line of credit for the purpose of purchasing lots and the construction of a specified number of homes. The lines renew annually. The bank must approve the funding of each lot/home under the line separately. The portion of the line allotted to the construction of each home is booked as a separate loan in our system. The initial flood requirements (determination, borrower notice, etc...) are all triggered by the individual construction loans, not the master line. There is no note created for the individual construction loans (only a settlement statement).
The master line agreement states that individual homes should be completed within 12 months from the date construction begins (loan is booked). If still under the line after 18 months, a principal pay down is required, and again at 24 months. If still under the line after 24 months, then converted to a 15 year fixed loan.
When the individual loans are booked, they have an initial 12 month term. The Loan officer will review prior to the maturity date and if balance remains and no occurrence of default, then will automatically extend the maturity date by 6 months, until 24, when it is converted.
Questions:
-Would the annual renewal of the master revolving line to the builder be a MIRE event?
-For the extensions of the individual construction loans , would these be a MIRE event or would the OCC's guidance issued in 2017 on automatic extensions apply?
We have both sides being argued and any help would be greatly appreciated!!
We have some builders with a master revolving line of credit for the purpose of purchasing lots and the construction of a specified number of homes. The lines renew annually. The bank must approve the funding of each lot/home under the line separately. The portion of the line allotted to the construction of each home is booked as a separate loan in our system. The initial flood requirements (determination, borrower notice, etc...) are all triggered by the individual construction loans, not the master line. There is no note created for the individual construction loans (only a settlement statement).
The master line agreement states that individual homes should be completed within 12 months from the date construction begins (loan is booked). If still under the line after 18 months, a principal pay down is required, and again at 24 months. If still under the line after 24 months, then converted to a 15 year fixed loan.
When the individual loans are booked, they have an initial 12 month term. The Loan officer will review prior to the maturity date and if balance remains and no occurrence of default, then will automatically extend the maturity date by 6 months, until 24, when it is converted.
Questions:
-Would the annual renewal of the master revolving line to the builder be a MIRE event?
-For the extensions of the individual construction loans , would these be a MIRE event or would the OCC's guidance issued in 2017 on automatic extensions apply?
We have both sides being argued and any help would be greatly appreciated!!
Quote:
OCC Interpretive Letter# 1156 -
"...Based on the OCC’s review of this issue, the OCC concludes that an automatic extension of a credit facility that is agreed upon by the lender and the borrower at the origination of the loan and memorialized in the credit agreement does not constitute a “make, increase, extend or renew†(MIRE) event that would trigger the federal flood insurance requirements because the automatic loan extension was contemplated in the loan agreement.
Your letter indicates that some commercial credit facilities provide for one or more automatic extensions of the credit facility, which are agreed to by lenders and borrowers at the origination of the loan and memorialized in the credit agreement. For example, the credit agreement may have an initial loan term of three years and the borrower has the right to extend the agreement one or more times, each for an additional one-year period. Your letter sets forth the view that such automatic extensions are not new extensions of credit. Your letter further indicates that automatic extensions are an integral part of the origination of the loan, and that exercising the extension is at the borrower’s option.
...Based on the OCC’s review of this issue, an automatic extension of a credit facility that is agreed upon by the lender and the borrower at the origination of the loan and memorialized in the credit agreement does not constitute a MIRE event that would trigger the federal flood insurance requirements because the automatic loan extension was anticipated in the original loan agreement. "
"...Based on the OCC’s review of this issue, the OCC concludes that an automatic extension of a credit facility that is agreed upon by the lender and the borrower at the origination of the loan and memorialized in the credit agreement does not constitute a “make, increase, extend or renew†(MIRE) event that would trigger the federal flood insurance requirements because the automatic loan extension was contemplated in the loan agreement.
Your letter indicates that some commercial credit facilities provide for one or more automatic extensions of the credit facility, which are agreed to by lenders and borrowers at the origination of the loan and memorialized in the credit agreement. For example, the credit agreement may have an initial loan term of three years and the borrower has the right to extend the agreement one or more times, each for an additional one-year period. Your letter sets forth the view that such automatic extensions are not new extensions of credit. Your letter further indicates that automatic extensions are an integral part of the origination of the loan, and that exercising the extension is at the borrower’s option.
...Based on the OCC’s review of this issue, an automatic extension of a credit facility that is agreed upon by the lender and the borrower at the origination of the loan and memorialized in the credit agreement does not constitute a MIRE event that would trigger the federal flood insurance requirements because the automatic loan extension was anticipated in the original loan agreement. "