Commercial Line of Credit Renewal

Question: I've got an issue with a 12-month revolving line of credit up for its second renewal. The loan was made two years ago to a business owner, though the loan was made to the individual not his Company. The loan was made for a commercial purpose (real estate investment), with the loan documents making that purpose clear. Also, it can be verified that all draws were used for this specific purpose. The loan has performed and paid as agreed, with a current balance of $165,000 on a $200,000 limit. The collateral pledged is the borrower's personal residence. We do not currently offer a home equity line of credit product. Given the purpose of the loan, does RESPA apply? Will examiners consider this to be a traditional HELOC?

Answer: Your analysis is correct. The key question for both RESPA and Regulation Z is the loan purpose. Since your loan purpose here was business and not consumer, the only "consumer" regulations that would apply would be Regulation B and Flood. It sounds as though you have those bases covered. Renewals do not change the loan purpose unless the borrower specifically tells you that the loan is now for a different purpose. However, since the loan was and remains business purpose and it is properly documented as such (give a gold star to that loan officer!) you have complied with the appropriate regulations.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 15, 12/05