[Angie Cowell]

We have a request for a loan in a business name to purchase residential real estate, but the purpose is clearly personal, secondary residence. Write up even states accountant suggested to put in company name for tax purposes. We have reviewed Reg Z and the exam manual on determining whether a loan is for a business purpose. We have determined that we should provide disclosures to the borrower even though in a business name. We are now wondering if ATR should apply. ATR states you must make a reasonable good faith determination before or when you consummate a covered mortgage loan that the consumer has a reasonable ability to repay the loan. The definition of consumer in regulation Z is a natural person. Therefore we are assuming that ATR will not apply to this loan. Do you agree with that assumption? Also, does the fact that this is to an entity exempt this loan completely from Reg Z completely, even though it is not for a business purpose?

[rcooper]

If a loan is not being made to a natural person it is exempt from Reg Z. See 1026.3(a)(2).

[jholzknecht]

I fully agree with Robin’s answer, but would like to remind you that generally accepted banking practices for a commercial loan include a review of company documents. For example, if the company is a corporation you should obtain and review the articles of incorporation and bylaws. Your should determine if the documents allow the company to borrow? Who has the authority to sign a promissory note? Can corporate assets (the secondary residence) be pledged as collateral to secure a debt?

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