Is a loan to a builder to construct a home for resale HMDA reportable? Everything we're reading seems to contradict itself.

If this is a construction only loan, it is not reportable.

That's what we've been doing, but we recently attended a seminar where we asked the speaker about a builder's loan that didn't sell and we had to rewrite it until it does sell. He said it should have been reported as HMDA when it was first done because it was not considered temporary financing because the loan was not designed to be replaced by permanent financing of a much longer term. The original intent was to pay it off after it sold.

The instructor gave some bad advice. Construction only loans are exempt regardless how they are to be repaid.

Thanks.

Construction only loans are not reportable.

What are you guys doing when you have to refi becausse it did not sell yet?

In the only instance I'm aware of, we had paid the old loan off with a new loan to the builder/developer (instead of doing a modification) so we are considering it a refinance. Does that sound right?

Compliance Lover: check out the article entitled "HMDA Temporary Financing" at our website.
http://www.bankerscompliance.com/compliance-resources/free-downloads.htm

You may even want to forward it to the instructor you mentioned.

Yes, I've got this article and we've read this stuff over and over and it's still confusing. On one hand the 2nd loan to the builder is still temporary (they will pay it off when they sell the newly built home), but if we don't extend or modify it, but "refinance" it by paying the first loan off and replacing with a new note, isn't that reportable? I've also been told in that case it is no longer temporary and will need to be reported. I realize this regulation isn't specific on their definitions, but what do most banks do when the home on the construction loan to the builder doesn't sell and he must get another short-term loan (replacing the first loan, not modifying it)?

HMDA exempts construction only loans (for the initial construction of the dwelling), Bridge/swing loans and other temporary financing.

The initial construction loan of the builder is exempt. The first refinancing of that loan is reported as a purchase, subsequent refinancings of that loan are reported as refinancings.



That is not temporary financing (a loan designed to be paid off by longer term financing), that is short term financing.

Ok, good. That is what we had done before this whole mess started. Thanks.

FYI - I was talking to an examiner about this and he said even if we pay the first loan off with a new loan because the builder couldn't sell it, it is still temporary financing unless he moves into it or if it is 100% complete and they make a principal reduction. He said they are basically just extending the loan until it sells. (Although it isn't technically an extension.) I thought it was now short-term financing, not temporary but he says temporary.

We have several of these situations and in most the builder is now renting out the proeprty and the loan term is 2 years. I have reported these as purchases....I hope I have a different examiner than you CL!

No, if they rent it out then you do report it. You're right about that.

If you "renew" or "modify" the loan then it would retain its exempt status, but if you satisfy and replace the dwelling secured obligation with a new dwelling secured obligation it would not. The new obligation will either meet the definition of a home purchase loan (converting a construction loan to permanent financing even though it is short term) or a refinancing.

The examiner actually gave me the following scenarios for us to follow in this situation:
1. If the builder moves intot he home, then yes, it would be reported as a purchase, owner occupied.
2. If our bank terms out the laon and requires principal reduction, then Yes this would normally be considered a purchase.
3. If the builder rents the home out, then Yes this would be considered a purchase, non-owner occupied.
4. If the home is 100% complete and we require principal reduction, then Yes this would normlly be considered a purchase.
5. If we extend additional financing (we do not term the loan out or require principal reduction) until the builder can get the home sold, and the builder does not occupy the home or rent it out, then NO, this would normally be considered a continuation of the original temporary financing and the loan would not be considered HMDA reportable.