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YOU CAN REPOSSESS YOUR HOUSE IF YOU DO NOT MAINTAIN THE REPAYMENT OF YOUR MORTGAGE. Private Finance Limited, 2018. Privat Finance offers mortgage advisory services and provides mortgage consulting services to customers. Exceptionally effective, very proactive and perfectly able to keep customers informed of developments. McCudden was effective, very reactive and always useful.

Watch out for "business purpose": The regulatory impact of investment and earmarked mortgage credits

Even though the regulative framework of adherence for mortgage creditors granting credit to private individuals is well established, this impact may be less simple when it comes to special credit facilities backed by housing such as fix and slip credits and housing credits. It is a widespread mistake that these kinds of credits, often granted by private or "hard" creditors, are exempted from government and state legislation governing credit for use.

But as the credit markets for these credits expand and regulatory authorities keep a close watch on these operations, it is important to recall that "business purpose" does not mean "compliance excluded". "An important point of departure is whether the credits are covered by the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).

RESPA and TILA together with their implementation rules set out a number of key regulatory oversight and reporting duties for mortgage creditors, such as the TILA-RESPA Integrated Disclosure rule (TRID), the ATR/QM rule (Ability to Repay/Qualified Mortgage) and the LO rule (Loan Originator Compensation). Where a loan is excluded from TILA and RESPA cover, these conditions do not exist.

The downside, however, is that creditors could face severe fines (and, in relation to certain types of injury, private litigation) by falsely categorising a loan as exempted. Therefore, creditors should be diligent in deciding and documentation whether TILA and RESPA are applicable. Firstly, credits to non-natural individuals are excluded.

TILA does not therefore have to be applied if the loan is granted to a company and not to an individuals. Secondly, credits intended primarily for professional or trade purposes are exempted. These exemptions are, however, more subtle than the exemptions for credits granted to non-natural individuals. TILA's official commentary on TILA's implementation ordinance, Decree Z, provides guidelines for deciding whether a loan can be regarded as having priority for a specific object.

The lender must assess five elements in determining a "business purpose": the proportion of the borrower's principal activity to the purchase; the extent to which the lender manages the purchase in person; the proportion of the aggregate proceeds from the purchase to the aggregate proceeds of the lender; the intended use of the lender for the loan.

A loan for the acquisition, improvement or maintenance of rented premises which are not owner-occupied and which is always to be regarded as commercial. Self-used rented objects can still be regarded as objects of commercial use, but special testing applies. Order X, the RESPA implementation order, does not contain a special exception for credits to non-natural people.

It explicitly excludes from its scope credits intended primarily for professional or trade use, based on the definition and guidelines laid down in Regulation Z. There are other rules and legislation on retail finance - which include, but are not restricted to, the Fair Housing Act (FHA), the Equal Credit Opportunity Act standing for Economic and Monetary Affairs (ECOA), the Fair Credit Reporting Act (FCRA), the Servicemembers Civil Relief Act (SCRA), the Electronic Fund Transfer Act (EFTA), the Home Mortgage Disclosure Act (HMDA) and tsunami protection legislation - that either cover retail and retail exposures alike or have special rules that may cover retail exposures.

The FHA shall apply, for example, to any natural or legal persons whose activities include "residential property transactions", including the granting or buying of credit or other forms of financing: a) for the sale, building, improvement, reparation or upkeep of a home, or b) for the security of a home.

They also apply to the sale, brokerage or valuation of housing. Thus, the FHA is valid regardless of whether the loan is for the purchase of asset assets and whether the debtor is a legal or natural person. Likewise, in general terms Ecofin is applicable to both loans to consumers and loans to enterprises, and imposes non-discrimination and termination obligations for all loan categories.

Under certain conditions, both the FHA and Ecofin may also be applicable to the buyers and assigns of the lender. In addition, guarantees, co-applicants or supplementary subscribers are often needed for corporate credit, which may give rise to specific consideration under Regulations B (the implementation ordinance of ECOA), FCRA, SCRA and E (the implementation ordinance of EFTA).

Exact ECOA's appraisal requirement (obliging lenders to provide a copy of expert opinions and other documentary assessments to applicants) also applies to all loan requests to be covered by a first mortgage on an apartment, regardless of whether it is a commercial or retail loan. Similarly, the nature and position of the securities determines the possible implementation of the flooding protection legislation, regardless of the commercial object of the loan.

A further remarkable point to consider is that the change to Order C, the executive order of HMDA, in 2015 will significantly broaden the range of kinds of transactions that will be accountable to it. Loans granted as mortgages or open lines of credit mainly for commercial purposes are foreclosed operations, but such foreclosure does not occur if the loan or line of credit covered by Order C fulfils the definitions of home loan, home market loan or refund.

In other words, a mortgage loan or an open line of credit to buy or upgrade a single-family home or apartment building (or to refinance it) is not precluded from HMDA notification for commercial reasons. As well as considering legislation at national level, dedicated creditors may be required to comply with a number of national legal provisions.

Certain states impose an authorisation requirement on creditors who grant credit backed by housing, whether for consumers or for businesses. Given that these demands differ widely from country to country, creditors should consider and consider the license terms in each of the countries in which they operate.

Besides license terms, other state legislation regulating various facets of home mortgage origination - such as the prohibition of crowding-out credits, high costs credits, agency charges and dishonest and misleading conduct and practice (UDAP) - may also be applicable to special interest credits. Within today's regulated framework, creditors granting special credit for commercial purposes should respect their commitments to the Confederation and the Länder and have appropriate guidelines and processes in place to meet these demands.

Furthermore, financiers and buyers interested in purchasing special purpose debt should take these concerns into consideration when conducting due diligence checks on the asset and originator as well as restructuring the purchase and participation of such debt. While many of the above -mentioned legislation and rules- are considered consumers' finance legislation, their application may actually be much more broad.