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Defining Temporary Financing, Then & Now
Dan Persfull, BOL Guru
Guru Bios
Question: I'm trying to determine the definition of temporary financing. Previous guru answers (in 7/05 and 12/05) have indicated that you must look to the repayment source to determine whether a loan is temporary financing. Repayment sources may include financing from another lender or the sale of an asset. However, in the BOL Tools section, there is a HMDA chart (Consumer and Commercial HMDA Worksheet for Closed End Loans updated 3/3/06) which implies that in order to classify a loan as temporary financing the repayment source can only be outside financing. Which is the more accurate definition? For example, if a bank makes a 12 month interest-only loan to an investor to buy a 1-4 home and the investor improves it and sells it within 3 months (i.e., the sale of an asset and this was documented as the repayment source) is this a HMDA reportable loan?
Answer: If you ever find a definitive regulatory definition of temporary financing please share it with us. Under the old interpretation, for HMDA purposes, temporary financing was considered a loan that was to be paid by long term financing or the sale of an asset. The Q&A released by the FFIEC in 11/05 removed the reliance on the sale of an asset. The loan must now be paid by long term financing arrangements to qualify for temporary financing.
The scenario you present does not indicate what the repayment source was to be at the end of the 12 months. If the repayment source was to be other long term financing the loan would not be reportable. If the repayment source was to be the sale of the property it would be reportable.
First published on BankersOnline.com 7/31/06
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