Reg O and Rule On Only One 1st Lien At A Time

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Question:

We have an executive officer that currently has a 1st lien mortgage and a home equity on the same property. He also wants to purchase a lot to build a new house, this lot loan would become financed into one construction perm loan. He will eventually move into this home once the other is sold. Is this possible under Reg-O or would it be best to have this individual finance the construction of his new home at another institution? I am worried about the rule of only having one 1st lien at a time, even though this will be temporary.

Answer:

by Kathleen Blanchard: You will want to review this FDIC opinion letter.

Answer:

by Randy Carey: The link that Kathleen provided will be very valuable. It basically comes down to the fact that an EO is only allowed one 1st lien loan at a time and all other loans then fall under the $100,000 limit.

The EO should be looking to another financial institution for financin

Answer:

by Jim Bedsole: To further clarify, you may already have a Reg O violation by virtue of having both the 1st lien mortgage and the home equity line on his current residence if the amount of the home equity line, combined with all other "Other purpose" credit the EO has at your institution exceeds the greater of $25,000 or 2.5% of unimpaired capital and surplus capped at $100,000 max. Because the home equity line is a subordinate lien, it falls within the "other purpose" restriction amount.