[Michelle]

We have a customer purchasing a new primary residence. Loan officer wants to do a consumer mortgage loan to purchase this residence ($50,000 down payment) and take the existing home only as collateral (which is free and clear). He wants it to be a temporary loan with a 1 year interest only payment schedule. Upon the sale of the existing home he will pay off this loan and he won’t have a mortgage on the new home because it will be free and clear also.

My questions: Is it ok to do this type of loan as a temporary/bridge loan although we aren’t taking the new home as collateral? If it is a temporary/bridge loan we won’t have to follow ability to repay rules.

Does right of rescission apply? I think so because we are lending him money against his primary residence.

Any guidance is appreciated. I don’t want to do the wrong thing. I just feel like we used to make any kind of loan we wanted to and now with Ability to Repay I keep thinking we can’t just make up any kind of loan and payment schedule.

Topic

[jholzknecht]

I am not aware of any provisions that would prohibit making the loan you describe. I agree with your analysis that the transaction is not covered by the ability to repay rules.

You mentioned that the loan is secured by the existing dwelling, which is apparently the consumer’s principal dwelling. Rescission applies.

It appears you have done a good job analyzing the loan.

[tressa]

Would the ATR rules not apply if the loan was secured with the new primary residence instead of the borrower’s existing resdience? Same loan scenario only new residence is collateral and not the existing residence.

[jholzknecht]

The loan is exempt from the ATR rules because it is temporary or bridge financing, not because of which dwelling secures the loan. It appears the loan is still temporary financing even if secured by the new dwelling since it designed to be repaid from the sale of the property rather than being replaced by financing of a longer term.

[jholzknecht]

The loan is exempt from the ATR rules because it is temporary or bridge financing, not because of which dwelling secures the loan. It appears the loan is still temporary financing even if secured by the new dwelling since it designed to be repaid from the sale of the property rather than being replaced by financing of a longer term.

[Author]

Replies