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Commercial Loan if Purpose Rental Income?

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Question: 
We have a member at our credit union that wishes to increase their home equity line of credit in order to purchase a rental property. The line of credit is on their primary residence, and would remain so. Would this be considered a commercial loan (and therefore require an originator with commercial lending authority), where the purpose would be to provide rental income? Or would it not, considering the actual collateral of the loan is the member's primary residence.
Answer: 

Per NCUA Section 723, a loan fully secured by a member's primary residence is not a business purpose loan; if the credit union is not subject to NCUA rules you will have to check state credit union rules.

723.1 What is a Member Business Loan?
(a) General rule. A member business loan includes any loan, line of credit, or letter of credit (including any unfunded commitments) where the borrower uses the proceeds for the following purposes:
(1) Commercial;
(2) Corporate;
(3) Other business investment property or venture; or (4) Agricultural.

(b) Exceptions to the general rule. The following are not member business loans:
(1) A loan fully secured by a lien on a 1 to 4 family dwelling that is the member'sprimary residence;
(2) A loan fully secured by shares in the credit union making the extension of creditor deposits in other financial institutions;
(3) Loan(s) to a member or an associated member which, when added together, areequal to less than $50,000;
(4) A loan where a federal or state agency (or its political subdivision) fully insuresrepayment, or fully guarantees repayment, or provides an advance commitmentto purchase in full; or
(5) A loan granted by a corporate credit union to another credit union.

First published on BankersOnline.com 7/2/12

First published on 07/02/2012

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