Topic: Temporary Financing
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We are extending a bridge loan that will be secured by the borrowers’ current home and a new home that is being purchased. The borrowers’ current home is owned by three people — two borrowers who reside there and a third individual who does not reside there and is not a borrower on the bridge loan. Our loan documentation system (LaserPro) added the third person to the Closing Disclosure. However, we do not believe the third individual is entitled to receive the Closing Disclosure since they are not a borrower and are not entitled to rescind the transaction. Can you confirm that this is correct, and that Illinois law does not require the third person in this scenario to receive the Closing Disclosure?
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Yes, we agree that the third individual in this scenario should not be included in the Closing Disclosure, since they are not a borrower on the bridge loan and a security interest is not being taken in their principal dwelling. While this individual may need to sign certain documents to perfect your bank’s lien on…
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When originating a bridge loan secured by the borrower’s current principal dwelling and a new principal dwelling, when should the mortgages be recorded? Under Regulation Z, a bridge loan is subject to rescission when it is secured by the borrower’s current principal dwelling and the new dwelling being purchased. For example, if a loan closing is scheduled for June 14, the loan documents would have to be dated June 10 to ensure that the three-day rescission period has passed before we disburse the loan funds to purchase the new principal dwelling. But in that scenario, our loan origination system would produce a mortgage for the current dwelling and a mortgage for the new dwelling, each dated June 10. How can a borrower mortgage a property that they do not yet own?
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A borrower cannot mortgage a property they do not own, because they cannot convey its title to a lender when they do not own the property. We agree in this scenario that the promissory note and the mortgage on the current dwelling both should be dated and signed on June 10, to allow for the…
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If we obtain a flood determination for a construction loan, the comments section of the flood certification states “land only.” Once the construction is finished, the customer generally converts the construction loan into permanent financing. If we recertify the original flood determination for the new loan, the “land only” comment cannot be removed. Is this acceptable, or do we need to obtain a new flood determination which would result in an additional fee to the borrower?
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We believe that your bank should obtain a new flood determination, as the previous determination related only to the land securing the initial construction loan. The National Flood Insurance Act permits lenders to “rely on a previous determination of whether the building or mobile home is located in an area having special flood hazards.” However, this…
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We extended a dwelling-secured, five-year, fully-amortizing loan to pay for the borrower’s construction costs to build a primary residence. We disbursed the loan proceeds directly to the borrower. Is this loan reportable under the Home Mortgage Disclosure Act (HMDA)?
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Under the new HMDA rules that took effect in 2018, if the construction loan is designed to be replaced by permanent financing at a later date (in other words, a two-phase loan), the first phase of the construction loan is excluded from HMDA reporting as a temporary loan. However, if the construction loan is not…
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Is a short-term bridge loan to purchase a primary residence that will be secured by the borrower’s current and new residence subject to the TILA-RESPA Integrated Disclosure (TRID) requirements?
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Yes, the TRID requirements apply to all closed-end consumer credit transaction secured by real property (other than a reverse mortgage). There is no exception to the TRID requirements for a short-term, temporary bridge loan. Certain bridge loans are exempt from certain other Regulation Z requirements (including some of the ability-to-repay (ATR) and qualified mortgage (QM)…
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What should we list as the loan purpose on the Loan Estimate under the TILA-RESPA Integrated Disclosure (TRID) rules for a closed-end loan to purchase a manufactured home that will be attached to land? The borrower already owns the land, and the loan proceeds will be used to purchase a modular manufactured home to be placed on the land, but a portion of the loan also will be used to build a basement, porch and garage for the manufactured home. The loan will be secured by both the manufactured home and the land it will sit on. Is this a purchase loan or a construction loan?
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In our view, the purpose of this loan should be identified as a purchase. The TRID rules require lenders to identify just one of four possible loan purposes in the Loan Estimate: (1) purchase, (2) refinance, (3) construction, or (4) home equity. We believe that “construction” is inapplicable for two reasons. First, the purpose of construction is…
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Are bridge loans subject to the TRID disclosure requirements even though they are exempt from RESPA?
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Yes, the TILA-RESPA integrated disclosure (TRID) disclosure requirements apply to bridge loans, even though bridge loans are exempt from RESPA regulations. In publishing the final rule implementing TRID, the CFPB acknowledged that temporary loans may have unique characteristics that make them ill-suited for RESPA disclosures. Nevertheless, the CFPB included temporary loans in the TRID disclosure…