RESPA & GMI on a Home Improvement Loan

Question:

A customer recently purchased a second home, with the intentions of it becoming his primary residence after renovating. We did not finance the purchase money, but made the improvement loan. Upon the sale of their current primary residence, they will pay off the improvement loan. The term is one year. The loan officer treated the loan as investment property, stating "not homestead...not subject to RESPA." I find only one sentence in Sec. 3500.5 that would exempt this transaction from RESPA regarding "Any construction loan for new or rehabilitated 1- to 4-family residential property...is subject to this part if its term is for two years or more." Everything else I read indicates that this transaction is subject to RESPA. Am I correct? We are not a HMDA reportable bank, but it also looks like obtaining GMI applies. Can you please advise on both issues?

Answer:

You are correct. This is a covered loan.

First, it is not a construction loan. "Construction" means initial construction. Once a dwelling it built, it is being improved. Second, "not homestead" doesn't exempt it from RESPA.

If you are not subject to HMDA, don't collect GMI on this loan. It is a home improvement loan - not subject to Reg B's GMI collection requirements.

First published on BankersOnline.com 8/10/09