Hard Money: What's covered by what?

In trying to figure out what loan is covered by what law, people will ask, "is it a one to four family residence?" Or, "is it owner occupied?" Is it commercial property?

Don't forget. You need a purpose.

Part of what loan is covered by what law falls to the loan PURPOSE. What the money will be used for - is it for consumer or non-consumer purpose?

A quick cheat-sheet:

RESPA (Real Estate Settlement Procedures Act) Only affects loans secured by 1-4 family residences, BUT you have to know the purpose.

1-4 family residence loan for consumer purposes - covered by RESPA

1-4 family residence loan for non-consumer purposes - not covered

TILA (Truth in Lending Act) (the good-old APR)

Again you HAVE to know the purpose. But here's a wrinkle:

ALL consumer loans are covered. Yes, 1-4 family, 28 units, commercial and office buildings, IF the proceeds of the loan will be used for consumer purposes.

Yes, Martha, if we refinance the office building to remodel our house, they have to give us the Truth in Lending Disclosure. TILA applies.

NMLS (National Mortgage Licensing System) Originators must have this endorsement to originate loans that are both secured by a 1-4 family residence AND are consumer purpose loans. (So a loan on a rental, for business purposes would not require the use of an NMLS endorsed loan officer.*)

CONSUMER LOANS DEFINED: Loans to consumers (natural persons) that are for personal, family or household use.

* NMLS does not require that an originator have an NMLS endorsement to originate NON-CONSUMER loans secured by a 1-4 family residence. HOWEVER, most FHLMC/FMNA / SECONDARY MARKET institutional lenders require that the originator have the NMLS endorsement for ANY 1-4 family loan, whether or not the loan is for consumer purposes, so many people think that is the law, which it's not.

I believe that 90% of the people in the lending industry aren't aware of this distinction. (about loan purpose) Good to be aware of, since regardless of what part of the housing industry you're involved in, this comes up.

For me, as a hard money lender, I don't do owner-occupied loans, but often run into non-owner loans that are for consumer purposes. Working on a small office building loan right now where owner will use proceeds for a consumer purpose - so must give TILA disclosures.

Hope this is of value.

Joffrey Long