Vacant Land Loansunoccupied loan
For a long time, the Act on Property Settlement Procedures ("RESPA", transposed by Regulation X) and the Truth-In-Lending Act ("TILA", transposed by Regulation Z) have banned mortgages providers from interpreting the legislation associated with each act and applying it to the actual credit business. Over the years, these two acts have been enacted by various authorities, RESPA by the Department of Housing and Urban Development and TILA by the Federal Reserve Board.
The Dodd-Frank Act enabled the establishment of the Financial Consumer Protection Bureau (CFPB) and the consolidation of RESPA and TILA within the CFPB in 2010. Consequently, there have been far-reaching changes in the processes and demands for mortgages, which have not necessarily been well accepted by the banking industry.
Attempts have been made by many creditors to circumvent the CFPB's strict rules by restricting their loan activities to loans not covered by RESPA or TILA. These include in particular building loans, special loans, as well as fiduciary loans, loans backed only by land, reversed mortgage loans, home equity lines line of credits (HELOCs) and loans for prefabricated houses.
Lenders who have established a thriving franchise by concentrating on this type of credit have had freedom in the way they conduct businesses that would cause their peers to pale compliant or state-owned housing loans with jealousy. Since 1 August 2015, however, the CFPB has issued comprehensive amendments which involve the inclusion of some of these loans in the new wording of the current rules.
Whereas inverse mortgage loans, inverse mortgage loans, inverse mortgage loans (HELOCs) and loans for prefabricated houses will avoid these new demands, building loans and empty land loans destined for consumers will be covered by the Regulation. Z. Lenders applying for such credit on or after 1 August must meet the new conditions.
Furthermore, loans for commercial transactions will remain in line with the regulatory framework. However, even if the real object of the credit is to participate in something that would otherwise be regarded as a commercial credit, a credit to a trustee established for inheritance or fiscal budgeting will now be obliged to respect both rules as they are regarded as credit to consumers.
This change is also attracting a lot of attention from creditors who have been struggling with RESPA and TILA for years. Creditors who have benefited from the protection of the previously narrow jurisdiction of the law are now able to decide whether to give up a high-profit line of line of business or become acquainted with legislation and rules that even the most literate and knowledgeable creditors have been struggling with for years.
Should you or your organisation require assistance in navigation through these bodies of water, whether or not you have in the past operated a credit facility governed by RESPA or TILA, please consult one of our lawyers for finance if you have any queries or doubts.