Capital Absorption Risk · Debt service
Bridge Loan Providers and Refinancing Proceeds
Definition
Short-term loans, often a year or less at higher rates, that carry a project or purchase until longer-term financing or a sale closes; the refinancing or sale proceeds are then used first to repay the bridge lender. Federal ability-to-repay rules for residential mortgages do not apply to temporary or bridge loans with a term of 12 months or less[1][2].
Federal law
A market and contract term. No Act of Congress defines it; the federal laws below apply as described.
- Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, § 1411, 124 Stat. 2142 (Truth in Lending Act § 129C(a), 15 U.S.C. § 1639c(a)). Exempts temporary or bridge loans of 12 months or less from the residential mortgage ability-to-repay requirement (15 U.S.C. § 1639c(a)(8)). Official text: govinfo.gov, U.S. Government Publishing Office.
Federal regulations
Rules issued by federal agencies under the laws above.
- Minimum standards for transactions secured by a dwelling (Regulation Z), 12 CFR 1026.43(a)(3) (Consumer Financial Protection Bureau). CFPB Regulation Z exemption from ability-to-repay rules for bridge loans of 12 months or less. Official text: govinfo.gov, U.S. Government Publishing Office.