Topic: Temporary Financing
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Is a temporary bridge loan with a term shorter than one year subject to the higher-priced and high-cost loan provisions? Are there any other issues with the interest rate or escrow requirements?
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A bridge loan is covered by the high-cost mortgage requirements, but not the higher-priced mortgage requirements, in Regulation Z. A bridge loan secured by the borrower’s principal dwelling may qualify as a “high-cost mortgage” if the interest rate exceeds 6% or 8% over the average prime offer rate, or if it has points and fees…
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Are we required to fill out a Loan Estimate for a bridge loan to purchase a new home? The loan term would be one year – 11 months interest only, with a final balloon payment. The loan would be secured by the borrowers’ current residence and the purchased property. On the Loan Estimate, what should we disclose as the Property, Property Value, Purpose, and Product?
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Yes, the new Loan Estimate is required for every “closed-end consumer credit transaction secured by real property,” including bridge loans. Property: The Loan Estimate should list both property addresses, because both properties secure the transaction. The Official Interpretations to Regulation Z state that “where more than one property secures the credit transaction, § 1026.37(a)(6) requires…
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Our residential construction loan agreements permit us to charge a fee if the customer does not choose to obtain permanent financing with our institution. The loans are secured by the borrower’s principal dwelling. Can we charge this type of fee?
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Yes, from what you have told us, we believe you may charge this fee. We are not aware of any law that would prohibit such a contingent fee for a short term construction loan, assuming that the loan is not subject to Illinois’ High Risk Home Loan Act (HRHLA), as discussed below. Unlike Regulation Z,…
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Can we renew a bridge loan that closed before January 10, 2014, and still have it be exempt from ATR and QM? What if a bridge loan was closed after the rules went into effect and will need to be renewed?
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We believe that the ability-to-repay (ATR) and qualified mortgage (QM) rules exempt all bridge loans with terms of twelve months or less, regardless of when a bridge loan was entered into. 12 CFR 1026.43(a)(3)(ii). (The regulations do not fully define the term “bridge loan,” other than specifying that the term of such a loan should…
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Can we renew a bridge loan that closed before January 10, 2014, and still have it be exempt from ATR and QM? What if a bridge loan was closed after the rules went into effect and will need to be renewed?
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We believe that the ability-to-repay (ATR) and qualified mortgage (QM) rules exempt all bridge loans with terms of twelve months or less, regardless of when a bridge loan was entered into. 12 CFR 1026.43(a)(3)(ii). (The regulations do not fully define the term “bridge loan,” other than specifying that the term of such a loan should…
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When are construction loans exempt from RESPA disclosures, and how is the term “first user” defined? Are bridge loans to first users exempt from RESPA?
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Construction loans are generally exempt from RESPA disclosures except if the loan is for construction or rehabilitation of a 1-4 family residence and: May be converted to permanent financing by the same lender; or Is being used to finance a sale or transfer of title to the first user (12 CFR 1024.5(b)(3). There is not…
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Are bridge loans that the borrower does not intend to convert into permanent financing subject to RESPA or HMDA?
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Both the RESPA and HMDA regulations exempt “temporary financing” (“such as bridge or construction loans” or “such as a construction loan,” respectively). 24 CFR 3500.5(b)(3) (RESPA); 12 CFR 1003.4(d)(3) (HMDA). But, if a short-term loan is not designed to “bridge” a borrower to a longer-term, permanent loan, it is not considered temporary financing. As explained…
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Can we charge a fee for a very short term (45–60 day) bridge loan? Or could we waive some of the fees that we would charge on a normal mortgage loan?
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We do not believe that any laws or regulations would prevent you from charging the same fees and penalties on a bridge loan as you could charge on a longer-term loan. In our view, the general rule in the Illinois Banking Act, that banks may charge any fees “subject only to the provisions of [Subsection…
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Is it acceptable to collect government monitoring information (GMI) for construction loans if the intent is the make the loan permanent?
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Whether you can collect government monitoring information (GMI) depends on whether the loan is considered a “home purchase loan,” “home improvement loan,” or a “refinancing.” Regulation B prohibits banks from collecting information about race, color, religion, national origin, or sex unless they are required to collect information required by regulations such as Regulation C (the…