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Bridge if Funds From Marital Residence Sale/Temp?

A borrower is waiting on a divorce settlement (half equity in the existing marital residence). We are willing to loan the funds until this money comes in on a 9 month, interest only note. Is this a bridge, since the funds are from the marital residence sale or temporary? And the fees/costs exceed 3% of the loan amount which raises the question of how to treat this as an HPML or not, and is it subject to HPML requirements for appraisals?

by Dan Persfull: Based on the information provided this appears to be a short term loan. There is nothing presented that would make this a temporary or bridge loan.

by Jim Bedsole: Well, I think the answer depends somewhat on where you are talking about the exemption that would come by reason of this being called a "bridge" loan. Specific to the Reg Z HPML rules, both 1026.35(b)(2) and (c)(2) have exemptions for "bridge" loans. While the regulation does not provide a specific definition of "bridge" loan, nor any clarifying commentary, we have to look at the language of those two sections themselves. Neither section makes a stipulation of the requirement that the "bridge" loan also meet the standard of being "temporary" financing. They simply require that the loan be for less than 12 months, for the purchase of a new dwelling, where funds will come later from the sale of an existing dwelling within 12 months. That appears to be what you've described to me.

Dan's comments may come from long-time understandings from HMDA and the applicability of "temporary" financing vs. short-term financing. In the HMDA world, temporary financing (of which "bridge loan" is given as an example, does specifically talk about the current loan being replaced by more permanent financing once the existing dwelling is sold. Short term loans where a more permanent loan is not to be taken out have long been considered to be not "temporary" and therefore reportable. But even so. HMDA also does not specifically define "bridge loan". So while your loan may be exempt from HPML requirements, it may not be exempt from HMDA reporting.

First published on 06/18/2017

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