RESPA/Disclosures/HPML for Equity Loan

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Question:

I am working on a new loan transaction. The borrower is purchasing a primary residence and the loan will be sold in the secondary market. The 20% down payment will be borrowed against his home that is currently his primary residence that he owns free and clear. After the purchase is finalized, he will be living in the new home as his primary residence and the home he owns now that will be securing the equity loan will be used as an investment property. Does RESPA apply to the equity loan? Do early disclosures have to be issued? Also, does rescission apply to the equity loan since it is in fact his primary residence at this time. Also, since the equity loan will be kept in-house on a balloon rate, will this be considered a HPML where escrow will have to be collected?

Answer:

The current home is his primary residence at the time of consummation therefore all the applicable RESPA and TIL disclosures, including ROR, will apply. Review 226.23 and its Commentary.

Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, . . . . For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable.

First published on BankersOnline.com 5/9/11