Just need a second (3rd,4th...) opinion please on the following two scenarios:

1) Loan is to refinance an existing lot loan with additional funds to construct the primary dwelling. Security is the lot/dwelling under construction. I say this is a RMT (residential mortgage transaction) based on the OSC to 226.2(a)(24)6-7 -- the definition of RMT, including multiple purpose transactions and construction on previously acquired vacant land. Management is questioning OSC 226.2(a)(24)-5 where it discusses acquisition and the fact that a loan is not an RMT if the consumer had previously acquired some interest to the dwelling. What do you (the experts) think??

2) This one seems a bit more complicated. Loan is to refinance the existing mortgage on home "A", with additional funds to improve home "A" before sale, and still more new money to purchase home "B". Security consists of mortgages on both home "A" and "B". I believe this is a RMT based on the OSC 226.2(a)(24)-3 where it talks about principle dwelling. A borrower may have only one principle dwelling at a time. However, if they are buying a new dwelling (home "B") that will become the principle residence w/in 1 year, then the new dwelling is the principle dwelling. Again, management is saying this isn't a RMT because the borrower has an existing interest in home "A" which is the principle dwelling.

I don't know why I'm struggling with this, it seems so clear... but I just can't seem to convince my colleagues. So do you think scenario 2 is also a RMT?

Thanks for your support.

Julia,
I think your reasoning on scenario 1 is right on. It is comment 7 that applies to this situation, not comment 5. If the property is vacant land, and they are planning to construct a dwelling, then the consumer does not yet have an interest in the dwelling, because there is no dwelling. Even if construction had begun, I think the transaction would be considered an RMT under comment 4 of the OSC to 226.2(a)(24).

On scenario #2, is your concern the early disclosures required if it's an RMT or right of rescission, or both? Based on the fact that funds are being used to purchase property B, and the loan is secured by property B, I think it meets the straight definition of RMT:
"(24) Residential mortgage transaction means a transaction in which a mortgage, ... is created ...in the consumer's principal dwelling to finance the acquisition...of that dwelling."

However, I still think the security interest taken in property A is subject to Right of Rescission, based on OSC 4 to 226.23(a)(1):

"4. Special rule for principal dwelling. Notwithstanding the general rule that consumers may have only one principal dwelling, when the consumer is acquiring or constructing a new principal dwelling, any loan subject to Regulation Z and secured by the equity in the consumer's current principal dwelling (for example, a bridge loan) is subject to the right of rescission regardless of the purpose of that loan. For example, if a consumer whose principal dwelling is currently A builds B, to be occupied by the consumer upon completion of construction, a construction loan to finance B and secured by A is subject to the right of rescission. A loan secured by both A and B is, likewise, rescindable."

Thanks for replying, Jill . In both scenarios the TIL didn't include an assumption policy disclosure as required on RMTs (minor technical thing, but still). Management is trying to reason that the loans were refinances and thus not RMTs. But the additional funds make me think otherwise. I am just having the hardest time convincing them. On scenario 2, rescission was provided (thank goodness) it's just the assumption policy. Nevermind that I found 3 others so these 2 aren't the only ones, they just can't grasp these are actually errors.

Quote:

---

If the property is vacant land, and they are planning to construct a dwelling, then the consumer does not yet have an interest in the dwelling, because there is no dwelling.

---

I go along with this comment 100%. Look to the full definition of a RMT which Jill quoted a part of. You had a loan on vacant land, no dwelling (primary or otherwise) securing the loan. You are advancing money on a new loan to now be secured by the land AND the construction of the borrowers new primary dwelling.

How can management not see this is a RMT?

226.2(a)

(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling.

Scenario # 2 is also a RMT because you are creating a security interest is what will become the principal residence. ROR applies because you are taking a security interest in the borrower's current primary residence.

A quick call to your friendly federal examiner should help clear up the dispute (in your favor I might add).

Thank you both so much. I felt like I was on the right track, but when constantly questioned and asked to "revisit" that section of the regulation, I start to have doubts. It helps to have a little support from other professionals who read this stuff for a living.