Yes, on top of the fact that Rose Financial requires an appraisal for practical reasons, there is a legal requirement to:

1. Obtain an appraisal: Title XI of FIRREA and its implementing regulations. (§§ 1026.35(c)(1)(i) and 35(c)(3)(i))
2. Have the appraiser visit the interior of the property and provide a written report. (§ 1026.35(c)(3))
3. Deliver Copies of the appraisal to the borrower no later than three business days before the loan closes. (§ 1026.35(c)(6)(ii))

If the subject property is a Primary Residence, Yes. If not, No. Under the new regulations as of January 1, 2014:

1. If the loan is defined as a Higher-Priced Mortgage Loan (§ 1026.35 (a)(1))
2. An Escrow Account for Property Taxes and Homeowner’s Insurance is required (§ 1026.35(b)(3)(2))
3. The account must remain in place for at least five years from origination (§ 1026.35(b)(3))

Yes. Asset depletion is based upon reasonable continuity of funds for at least 36 months from the date of origination. Special handling is needed on these loans.

No, we do not accept stocks and bonds under the Asset Depletion Program.

Yes, but only if the borrower has a valid Tax Identification Number (TIN) AND if they live within the United States of America. If the loan is secured by a primary residence, the borrower’s ability to repay the loan must be verified with third-party documentation. (i.e. paystubs, W-2s, 1099s, tax returns, etc.)

No, the Matricula Consular Card is not an acceptable form of identification.

The fast answer is YES, but conservatively. We will typically entertain up to 65% of the future value of the project and funds control the proceeds needed to complete the improvements in order to make the property marketable.

Regulation Z, CFR 12 Section 226.35(a)(3) lays out the exceptions to the HPML Rule: (3) Notwithstanding paragraph (a)(1) of this section, the term "higher-priced mortgage loan" does not include a transaction to finance the initial construction of a dwelling, a temporary or "bridge" loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months, a reverse-mortgage transaction subject to Sec. 226.33, or a home equity line of credit subject to Sec. 226.5b. The exceptions to HPML are very limited. The discussion below represents our understanding of the statutes and should not be interpreted as legal advice.

Construction Loans

Construction loan made for the “initial construction of a dwelling”. Unfortunately, “partial-construction”, “rehab”, and other construction-related purposes do not meet the current definition of a Construction Loan under this section and are therefore NOT excluded transactions

Reverse Mortgages

Rose Financial does not originate Reverse Mortgages.

HELOC

Rose Financial does not originate HELOCS, making this exception irrelevant, too.

A simple Interest Loan is a personal secured or unsecured loan. Some examples include home improvement and personal loans. With a Simple Interest Loan, interest is calculated on the principal loan balance on a daily basis. In most cases, loan payments are applied first to the interest due for the period and the remaining payment is applied to the principal balance.

Interest is charged on a daily basis, according to the outstanding principal balance. The daily interest amount is equal to the annual interest rate divided by 365 days (366 days in a leap year).

Since interest is calculated on a daily basis, the number of days between your payments will affect the amount that is first applied to interest, with the remainder being applied to principal to reduce your principal balance.

Sorry, but we cannot. By definition, bank statements are not “income documents” and it is not possible to determine what amount of each deposit represents income. However, with a paystub, W-2 statement, entitlement letter, tax return, etc., monthly income can be verified and proven.

Rose Financial separates loan submissions into two categories: Regulated and Unregulated. That is, do sections 32 and 35 apply to this loan?

REGULATED LOANS

Generally speaking, Regulated Loans are loans made to an Owner-Occupant Borrower. In other words, loans made against the 1-4 unit Primary Residence. These loans are regulated by Title 12, Chapter X, Part 1026, Subpart E, §1026.32 (High-Cost Loan Regulations, AKA Section 32 Loans) and Title 12, Chapter X, Part 1026, Subpart E, §1026.35 (Higher-Priced Loan Regulations, AKA Section 35 Loans).

Income documentation is a legal requirement for all Regulated Loans. Upon examination of income documentation, the underwriter must determine if the income is sufficient to make the loan payment in light of the borrower’s economic picture. For this reason, “stated income” is unlawful if the loan is regulated by either §1026.32 or §1026.35.

UNREGULATED LOANS

Unregulated Loans for the purposes of this conversation are those loans that are statutorily excluded from regulation under §1026.32 and §1026.35. These property types include:

1. Owner-occupied properties collateralized for a “business purpose loan” or a “bridge loan”.
2. Owner-occupied properties of five or more units
3. Mixed Use properties
4. Non-owner occupied properties
5. All commercial properties

Legally speaking, lenders are allowed to make “stated income” loans against the above referenced properties. In most cases, Rose Financial will decline “stated income” unless the loan meets this criteria:

1. LTV/CLTV is under 45%
2. Overall picture demonstrates the borrower manages his/her finances well
3. All or a substantial part of the borrower’s income comes from Schedule C or Schedule E sources

Believe it or not, there are several different definitions of “loan application”, or specifically, at what point is enough information gathered from a consumer to trigger a response by the MLO?

Regulation B:

Under Regulation B, a loan application means an oral or written request for an extension of credit that is made in accordance with procedures established by a creditor for the type of credit requested. A completed application means an application in connection with which a creditor has received all of the information that the creditor regularly obtains and considerers in evaluating applications for the amount and type of credit requested.

HDMA:

Application means an oral or written request for a home-purchase or home-improvement loan that is made in accordance with procedures established by a financial institution for the type of credit requested.

FCRA:

a) In general. Subject to subsection (c), any consumer reporting agency may furnish a consumer report under the following circumstances and no other: … (2) In accordance with the written instructions of the consumer to whom it relates. (3) To a person which it has reason to believe (A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer…; or (F) otherwise has a legitimate business need for the information (i) in connection with a business transaction that is initiated by the consumer; or (ii) to review an account to determine whether the consumer continues to meet the terms of the account

REG Z:

Regulation Z does not have a definition of application.

RESPA:

Application means the submission of a borrower's financial information in anticipation of a credit decision, whether written or computer generated, relating to a federally related mortgage loan. If the submission does not state or identify a specific property, the submission is an application for a prequalification and not an application for a federally related mortgage loan under this part. The subsequent addition of an identified property to the submission converts the submission to an application for a federally related mortgage loan.

TRID:

The new TRID definition only includes six items: (1) The name, (2) Income, (3) Social Security number, (4) The property address, (5) Estimate of the value of the property, and (6) The mortgage loan amount sought.

TRID will establish the new standard for when the MLO is obligated to send disclosures to a consumer, and will become the new definitive standard for the mortgage industry as a whole.

For the purposes of making full disclosure and exercising best-practices, Rose Financial recommends that Brokers continue to include the MLDS Traditional or Non-Traditional forms in their initial disclosure packages.

Questions about the Mortgage Loan Disclosure Statement can be directed to the Mortgage Loan Activities unit at (916) 263-8941.

Yes, 7-day waiting period is required under federal law. Section 128(b)(2)(A) of TILA provides that good faith estimates of the disclosures under section 128(a) shall be delivered or placed in the mail not later than three business days after the creditor receives the consumer’s written application. 15 U.S.C. 1638(b)(2)(A), section 128(b)(2)(A) also requires these disclosures to be delivered at least seven business days before loan consummation. Rose Financial defines consummation in this context as the date that the consumer signs the loan documents.

The motivation behind a consumer’s loan makes all the difference from a regulatory point of view. Here’s why – if the loan is primarily for “personal, household, or family” purposes it is considered by Regulation X (TILA) and Regulation Z (RESPA) as a “Consumer-Purpose” loan and, as such, is regulated by TILA and RESPA.

If the loan is primarily for “Business, Commercial or Agricultural Purposes”, TILA and RESPA regulations are not applicable. (12 CFR 226.3 and 12 CFR 1024.5(b))

Yes! Any loan made on the following property types are exempt from TRID:

1. Five or more residential units
2. Mixed Use
3. Commercial
4. Industrial
5. Agricultural
6. Raw Land

According to 12 CFR §1002.9(d), a creditor must notify an applicant of action taken on the applicant’s request for credit, whether favorable or adverse, within 30 days after receiving a completed application. Typically, a loan origination includes regular contact between the creditor and borrower via the exchange of documentation. If no activity occurs after a loan has been submitted and a disclosure package sent by the creditor to the borrower, that borrower must receive a Notice of Action Taken (if the application is declined by the lender or withdrawn by the borrower) or a Notice of Incompleteness (if the application is incomplete).

According to 12 CFR §1002.9(d), a creditor must notify an applicant of action taken on the applicant’s request for credit, whether favorable or adverse, within 30 days after receiving a completed application. Typically, a loan origination includes regular contact between the creditor and borrower via the exchange of documentation. If no activity occurs after a loan has been submitted and a disclosure package sent by the creditor to the borrower, that borrower must receive a Notice of Action Taken (if the application is declined by the lender or withdrawn by the borrower) or a Notice of Incompleteness (if the application is incomplete).

Yes, under prescribed circumstances a consumer may voluntarily waive their TRID rights.

No, a Corporation, LLC or Partnership cannot be designated as a “consumer” in a real estate transaction under § 1026.3

Under TRID guidelines, is a new Closing Disclosure and a new 3-day waiting period required if the APR is lowered by more than .125% AFTER a CD has been sent to the consumer?

A qualified “no”, a new CD would not be required as long as the lowered APR resulted from decreasing the interest rate. (1) (2) However if the lowered APR is not the direct result of a lowered interest rate, but instead due to a change in finance charges, a new CD is required. If the change in the APR exceeds .125% (for fixed rate loans only), a new waiting period is required as well. (3) (4)

1. http://www.consumerfinance.gov/about-us/blog/know-before-you-owe-youll-get-3-days-to-review-your-mortgage-closing-documents/
2. https://www.cfpbmonitor.com/2015/06/04/cfpb-provides-breathing-room-on-compliance-with-tilarespa-integrated-disclosure-rule-but-misses-mark-in-waiting-period-guidance/
3. http://www.consumerfinance.gov/eregulations/diff/1026-22/2011-31715/2013-30108_20140118?from_version=2013-30108_20140118#1026-22-a-1-i
4. http://www.consumerfinance.gov/eregulations/1026-18/2015-18239#1026-18-a

Rose Financial believes that a 3-day Right to Cancel should be given to any consumer loan collateralizing the primary residence, even if the loan is a Business-Purpose transaction.

Yes, under some circumstances Rose Financial will originate a “foreclosure bailout loan” if the loan meets these conditions:

1. The loan-to-value (LTV) does not exceed 65% for first loans and 60% for second loans.
2. The consumer must document that the economic circumstances leading to the foreclosure have been resolved. (Ex: was unemployed, now employed)
3. Full Income Documentation required
4. The debt-to-income (DTI) ratio is not above 43%. Rose Financial will make case-by-case exceptions to the 43% DTI requirement. (Rebuttable Presumption under 12 CFR §1026.43(e)(1))

Consumers who are in foreclosure are often driven to make loan decisions under duress, making them more vulnerable to unethical lending practices and must, therefore, be treated with a greater level of care and caution. The driving factor must always be the best interest of the consumer. When evaluating a consumer in foreclosure, the MLO should evaluate and discuss all options, including selling the property.

No, a new 3-day waiting period is not required with a Loan Estimate sent due to a changed circumstance. The CFPB states that the consumer must receive a revised Loan Estimate no later than four business days prior to consummation. (§ 1026.19(e)(4)(ii); Comment 19(e)(4)(ii)-1.ii) In other words, the Lender must wait until the following business day after the new Loan Estimate is sent before sending the Closing Disclosure.

According to the official interpretation to Section 1026.3—Exempt Transactions:

If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply. For example, a beach house that the owner will occupy for a month in the coming summer and rent out the rest of the year is owner occupied and is not governed by this special rule. (See comment 3(a)-5, however, for rules relating to owner-occupied rental property.)

According to official interpretation to Section 1026.3—Exempt Transactions: If credit is extended to acquire, improve, or maintain rental property that is or will be owner-occupied within the coming year, different rules apply:

1. Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than 2 housing units.

Credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than 4 housing units. Since the amended statute defines dwelling to include 1 to 4 housing units, this rule preserves the right of rescission for credit extended for purposes other than acquisition.

Neither of these rules means that an extension of credit for property containing fewer than the requisite number of units is necessarily consumer credit.

A Bridge Loan is statutorily defined in several locations:

1. 1026.32(d)(1)(ii)(B) “(B) A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition or construction of a dwelling intended to become the consumer's principal dwelling; or ”

2. 1026.35(b)(2)(i)(C) “(C) A temporary or “bridge” loan with a loan term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; or ”

3. 1026.35(c)(2)(v) “(v) A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge” loan connected with the acquisition of a dwelling intended to become the consumer's principal dwelling.”

4. 1026.43(a)(3)(ii) “(ii) A temporary or “bridge” loan with a term of 12 months or less, such as a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months or a loan to finance the initial construction of a dwelling; ”

5. Comment for 1026.43(a)(3)‐1 Renewable Temporary Or “Bridge” Loan. “Renewable temporary or “bridge” loan. Under § 1026.43(a)(3)(ii), a temporary or “bridge” loan with a term of 12 months or less is exempt from § 1026.43(c) through (f). Examples of such a loan are a loan to finance the purchase of a new dwelling where the consumer plans to sell a current dwelling within 12 months and a loan to finance the initial construction of a dwelling. Where a temporary or “bridge loan” is renewable, the loan term does not include any additional period of time that could result from a renewal provision provided that any renewal possible under the loan contract is for one year or less. For example, if a construction loan has an initial loan term of 12 months but is renewable for another 12‐month loan term, the loan is exempt from §1026.43(c) through (f) because the initial loan term is 12 months. ”

6. 1026.35(e)(3) Exclusions. “(3) Exclusions. This paragraph (e) does not apply to a transaction to finance the initial construction of a dwelling; a temporary or “bridge” loan with a term of twelve months or less, such as a loan to purchase a new dwelling where the consumer plans to sell a current dwelling within twelve months; or a reverse mortgage transaction subject to § 1026.33.”

7. Comment for 1026.23(a)(1)‐4 Special Rule For Principal Dwelling. “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.”

8. Comment for 1026.15(a)(1)‐6 Special Rule For Principal Dwelling. “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, a credit plan or extension that is subject to Regulation Z and is secured by the equity in the consumer's current principal dwelling is subject to the right of rescission regardless of the purpose of that loan (for example, an advance to be used as a bridge 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 loan to finance B and secured by A is subject to the right of rescission. Moreover, a loan secured by both A and B is, likewise, rescindable.”

How Does Rose Financial Interpret the Statutes?

Rose Financial believes that in order to meet the statutory definition of a Bridge Loan, the transaction must meet these qualifications:

1. The loan is secured by the consumer’s primary residence.

2. A reasonable portion of the loan proceeds must be used for the acquisition of the borrower’s future primary residence. Acquisition may include construction, down payment, earnest money deposit, security deposit, etc. The future residence can be a rented property. “Reasonable Sum” is a judgment call and cannot easily be defined.

3. The consumer’s primary residence is listed for sale.

4. Rose Financial will not structure a loan as a Bridge Loan as a means of evading the law.

How Is a Bridge Loan Structured ?

Rose Financial structures Bridge Loans as follows :

1. A term of 12‐months.

2. Interest‐only payments.

3. No prepayment penalty.

4. A consumer is given a 3‐day right to cancel after signing loan documents.

5. Ability to Repay is predicated upon the sale of the property. Income documentation is not required.

Why Would a Consumer Want a Bridge Loan ?

The most common reasons that consumers want a Bridge Loan are related :

1. The home is no longer affordable to the borrower and they need to downsize.

2. The home is in foreclosure. The owner needs to stop the foreclosure, sale the home, and move.

3. The borrower wants to take advantage of an opportunity that has a short fuse.

4. The borrower wants to finance the construction of their new home and will be selling the current residence within 12‐months.

Bridge Loan FAQs

1. Do all the proceeds of the loan have to be used for the acquisition of the future primary residence?
   No. Rose Financial requires that a reasonable amount of the loan proceeds are used for the acquisition of the future primary residence, but not all of the proceeds. Reasonable is hard to define. As a rule‐of‐thumb, Rose Financial wants to see at least 5% of the proceeds being used for the acquisition of the future residence.

2. Can some of the money be used for other reasons, such as making repairs to the home, paying off debt, or some other consumer purpose ?
   Yes

3. Does the house have to be listed for sale? Is that really a requirement ?
   Yes

4. When you say, “Ability to Repay is predicated upon the sale of the home”, does that mean that you do not ask for paystubs, W‐2 statements, tax returns, bank statements, etc.? Is this basically a Stated Income loan ?
   Yes, this is a stated income loan. No income documentation is required. However, a larger principle remains active: Rose Financial will never make a loan to a consumer that we believe cannot reasonable afford the payments. Ability to repay is predicated upon the sale of the home.

5. My Borrower really doesn’t want to sell the house but needs cash now. Can we list the house for sale, get the loan, then “change our minds” about selling the house after the loan closes ?
   No. Rose Financial will decline any Bridge Loan submission that is structured as an evasion to RESPA and REG Z.

6. Do the APR and Finance Charge restrictions under the HPML regulations apply to Bridge Loans?
   No. Bridge Loans are expressly exempted from HPML. Regulation Z, CFR 12 Section 226.35(a)(3).

The information above represents our understanding of the law as it pertains to Bridge Loans. THIS IS NOT LEGAL ADVICE. Rose Financial is not a law firm. Consult your attorney before relying upon any information stated herein.