@Ned Carey @Nathan Click @Upen Patel
Okay Gentlemen, I did a little work on this today, as it is important. People are generally way way off when they speak about it.
First there is a general misconception you can't get a residential loan with an LLC borrower on a 1-4 unit property. I was always sure you could, as I have 23 of them with 4 different banks. They all have NO balloon, and they are all 30 year amortization, fixed for 3,5 or 7 years. That makes them conventional non conforming. They all follow theconsumer protection laws that have to be followed - Parts of Dodd Frank, TILA and other disclosures mandated by the CFPB. My particular LLC 1-4 loans are underwritten on the borrower ability to repay, not the three C's from Nathan's post. My Chase 5+ loans are underwritten with those.
I called all 4 of my loan officers for these 1-4 properties, all of which who are employees of said banks. They are all residential loan officers, don't do commercial loans, and state I have residential loans. Furthermore they state you can't have a commercial loan on a residential property. That last part I'm not 100% on, I'll come back to that.
Portfolio lenders are simple to define. The bank is saying they are going to keep them. They price them as if they aren't going to sell them. They may underwrite generally as they please. But they still have the right to sell. Residential or commercial. All 23 of my residential LLC borrower loans on 1-4's have been SOLD. I have 5 additional LLC borrower Commercial loans at Chase. Those are with a special division of Chase (CTL) and have not been sold.
I would assert that simply as I always have that commercial loans are those made on commercial property and residential loans those made on residential property. This obviously excludes bundled residential loans and other oddball scenarios. The problem I see is the definition of commercial loans backs that up but the definition of residential has a potential loophole:
According to 12 USCS § 5102 (8), the term residential mortgage loan means “any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling (as defined in section 103(v) of the Truth in Lending Act [15 USCS § 1602(v)]) or residential real estate upon which is constructed or intended to be constructed a dwelling (as so defined).”
If it is truly for business purposes by a true business theoretically it could be commercial by this definition is my read??? BUT all banks are paranoid of getting sued so they disclosure it anyway, making it markedly different from a commercial loan and tossing it back into residential in my opinion.
I also called Fannie Mae, the CFPB and the CA Dept of Business oversight. All three of them had no idea what I was talking about. The lawyer at the CA association of realtors agreed with me but not convincingly so.
But for sure people here on BP are saying they're getting commercial loans and I'm pretty sure they're getting residential ones. And the characteristics of the loans are irrelevant unless prevented by residential rules. As Nathan said if you can think of it they can make a loan on and that doesn't mean anything.
Matt
