Q: We are getting requests from our lending team to give a residential loan to a borrower who is an LLC. Are there issues with this?
A: Luckily if the borrower is an LLC or other legal entity, then the loan will not be subject to Reg. Z, which would include all of its subparts like TRID, ATR/QM, etc.: From a fair lending standpoint and even UDAAP, if it is a small business, the bank does want to make sure it has objective, detailed guidelines for when rate/terms will and will not apply. Typically, this type of loan would be classified as a commercial loan for this purpose, even if it might also be secured by the principal dwelling. If that is how it is reflected in the bank’s policy, it sounds like it would be a policy exception to give this applicant the rate and terms of a consumer loan product. So, there are considerations with that.
Reference:
“9. Organizational credit. The exemption for transactions in which the borrower is not a natural person applies, for example, to loans to corporations, partnerships, associations, churches, unions, and fraternal organizations. The exemption applies regardless of the purpose of the credit extension and regardless of the fact that a natural person may guarantee or provide security for the credit.”
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/3/#3-a-Interp-9
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