CFPB on hard money lending

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.

last updated Wednesday, August 9, 2023
#HARD MONEY LOANS #Hard money loans

John Burson     Subscribe
CFPB on hard money lending

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

Thresholds for High-Cost Loans under CFPB

The bureau has set the following criteria for loans considered 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 toward the borrower’s primary residence.
  • The APR is more significant than 8.5% above the average prime offer, and it’s a first mortgage totaling $50,000 or less. The funding goes towards a manufactured home or personal property dwelling.
  • The APR is more significant than 8.5% above the average prime rate, and it’s a junior or second mortgage.

Sometimes, 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 prices 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 certain disclosures to the borrower. These may include explaining the lending terms and any fees or costs associated with the loan. The lender should additionally be transparent 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 the Real Estate Settlements Procedure Act (RESPA), TILA, and Integrated Disclosure Rule- sometimes called 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 detailed information about the key terms of the loan, closing costs breakdown, and projected repayment amounts throughout the loan. It additionally entails the total payments made by the borrower for five years and the total interest rates and APR throughout the loan. This replaces the Truth in Lending Disclosure (TILA) and Good Faith estimates (RESPA). Additional disclosures are also required under Dodd-Frank, which must be provided to the mortgage loan borrower after three days of applying.

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 for the revised TILA and HUU-1(RESPA). It additionally requires additional disclosures under Dodd-Frank. The form must be submitted within three days of closing.


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