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Under 1026.43, a temporary or bridge loan definition only refers to a dwelling. Is this intended to apply to primary? I have a situation where a customer wants to do a 12 month note for purchase of a home for son to occupy. Can this exemption apply under ATR/QM?
We would treat the loan as an investment property because it would not be our borrower’s primary residence but their son’s so ATR does not apply.
ATR applies to anything consumer purpose, secured by a dwelling. The issue is that there will not be any rental from the son to the parent so it can’t be viewed as commercial. If it is justified as bridge or short-term, I know I am exempt but if not, the reg would apply.
I see mbarnes’ point – in most of these situations it would be common for the borrower to purchase a rental property for investment purposes and, therefore, be exempt from the ATR rules. But in your case it sounds like the parent is simply purchasing the home for the son which would still be a consumer loan. I believe it would qualify for the temporary/short term loan exemption; here is why:
1) the preamble makes a definitive point that the examples given (i.e. construction, bridge) are illustrative and that the exemption may apply to any temporary loan that meets the requirements.
2) the scope in this section references the definition of dwelling in 1026.2(a)(19) which does not state it must be primary and neither does the temporary exemption.I am curious about the expectations at the end of the 12 month term. Is the loan to paid in full by then? Is there a balloon due at the end of 12 months? (That would be a problem because of the 60/61 month minimum term for a balloon.) Will the loan be refinance into a new loan of much longer term?
A bridge is designed top be paid from the sale of the old dwelling. A construction loan is generally to be paid from a refinance of much longer term.
The customer owns another property that the son currently occupies, that is listed for sale. Upon its sale, those proceeds will be paid down on this loan and the small remaining portion will then be refinanced to long term, permanent financing. Robin-That also was my understanding. I could not see where it was ever stated that it had to be primary. I just wanted a second opinion. Thank you guys!
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