Second Home Purchase - Applicable Regs & Disclosures

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Question:

A customer recently purchased a second home, with the intention of it becoming their 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. We are not a HMDA reportable bank, but it also looks like obtaining GMI applies. Can you please advise on both issues?

Answer:

The construction loan exemption is not applicable. Your loan is not a construction loan. It's a home improvement loan.

The loan is also not an investment property and it does not appear to be a temporary loan because no long term financing is to replace the existing loan. I also do not believe it will qualify as a bridge loan, because your loan is for the renovation of the property and not the purchase of the property; therefore, in my opinion, the loan is a short term consumer purpose loan subject to RESPA and Reg. Z.

First published on BankersOnline.com 7/20/09