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CFPB on hard money lending


paperfree Aditi Bansal 29:14
Published on Thursday, April 27, 2017

Contact a reputable real estate attorney to get more insights and in-depth guidance on closing transactions that entails hard money jumbo loans, transactional funding, and ETFs to avoid costly mistakes.

tags  #Hard money loans  #CFPB updates #Hard Money Regulations

 

Hard money jumbo loans are taking the real estate industry by storm. Real estate investors are seeking quicker sources of liquid capital to finance projects with short turnaround times. Additionally, the ever rising mortgage interest rates with traditional bank lenders turn investors to seek other alternatives of closing deals quickly.

High-cost lending is governed by various statutory laws including Regulation Z under section 32 of the Truth in Lending Act (TILA). In 2014, the Consumer Financial Protection Bureau (CFPB) made a few changes to Regulation Z. The changes defined the types of mortgage loans categorized as high-cost lending under Section 32 loans.

Thresholds for High-Cost Loans under CFPB

The bureau has set the following criteria for loans considered as high-cost loans:

  • The APR is higher than the average prime offer by more than 6.5% if it’s the first mortgage and the funding goes towards the borrower’s primary residence.
  • The APR is greater than 8.5% above the average prime offer and it’s a first mortgage totaling $50,000 or less, and the funding goes towards a manufactured home or personal property dwelling.
  • The APR is greater than 8.5% above the average prime rate and it’s a junior or second mortgage.

At times, a loan may qualify as section 32 lending depending on the fees associated with the loan. So, a loan can be considered high cost if the fees and the points:

  • Exceed 5% for loans totaling $20,000 or more
  • Exceed $1,000 or 8% of the loan for lending totaling $20,000 and above.

Lenders for high-cost loans must make particular disclosures to the borrower. These may include explaining the lending terms and any fees or costs associated with the loan. The lender should additionally clarify that the borrower is well counseled about the high-cost loan and home ownership.

Other Regulations on Hard Money Loans

Hard money loans may also be subjected to Real estate Settlements procedure Act (RESPA), TILA, and Integrated Disclosure rule- sometimes referred to as TRID. This rule requires borrowers to know every detail of the lending before committing to receive the loan. The lender must, therefore, provide the borrower with two forms: a closing disclosure form and a loan estimate form.

The Loan Estimate shows the detailed information about the key terms of the loan, closing costs breakdown, and projected repayment amounts over the duration of the loan. It additionally entails the total payments made by the borrower for a duration of five years, in addition to the total interest rates and APR over the period of the loan. This serves as a replacement to the Truth in Lending Disclosure (TILA) and Good Faith estimates (RESPA). Extra disclosures are also required under Dodd-Frank which must be provided to the mortgage loan borrower after three days of submitting the application.

The Closing Disclosure, on the other hand, includes details of the loan terms, closing costs, calculations for the closing cash, projected repayments, and a detailed analysis of the loan transaction. It serves as a replacement to the revised TILA and HUU-1(RESPA). It additionally requires extra disclosures under Dodd-Frank. The form must be submitted within three days to closing.



This page with a focus on Hard money loans, CFPB updates was shared by Aditi Bansal.

 
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