HMDA Getting It Right, page D-5


Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regulation C and is not reported.

Here it places temporary financing in quotations… From where is it quoting?

I am trying to find the definition of “temporary financing” to try to answer the question of:
The bank makes a 10 year home loan and the customer pays off the loan in 6 months, is it HMDA reportable or considered temporary financing?

Same situation, except the customer refinances a loan within six months of the origination. Is this reportable twice in one HMDA year cycle?

Where can I find these answers?

Thank you kindly.

This is a great article:
http://www.bankerscompliance.com/assets/files/articles/HMDA%20and%20Temporary%20Financing.pdf

That is a great article!
However, I don't see the answer to this situation.

We have a one payment, six month term balloon loan for home improvement purposes that is secured by a vehicle. The borrower has borrowed $12,000. They are getting $7,000 back on tax return and say they will pay the remaining $5,000 at the end of the term. However, the loan officer committed to an offer to renegotiate the $5,000 if for some reason the borrower can not pay off upon maturity.

Question: Do we report a HMDA loan for $12,000 and a HMDA loan for $5,000 if in fact we refinance the $5,000 at the end of the balloon term? Or would the $5,000 loan not be reportable because it does not meet the definition of “refinance”?

I’m new to this and soooo confused…

Thank you for your comments & help…!

OK,
Say same scenario as above.. BUT...

THe loan is a $5,000 ballon for 6 months (secured by a home)

At the end of the six months we refinance the loan (home secured)
Would we then report both $5,000 loans on HMDA?

Unless you classify non-dwelling secured home improvement loans as home improvement loans then the the loan is not reportable at all, neither would the refinancing.

If you do classify non-dwelling secured HI loans as HI loans then the initial loan would be a reportable HI loan. If you end up refinancing it the refinancing would not be reportable.


Second scenario. Since the loan is dwelling secured both the HI loan and the refinancing of that loan would be reportable, assuming the refinancing is also dwelling secured.

FWIW, I agree.

Thanks for the compliments on our article.

I HIGHLY recommend every institution define "bridge loan" and "temporary financing". Then apply these consistently.

We are currently going through an exam and were highly critized or reporting loans that they said are temp financing. Previously we did not report construction or bridge loans but may have put other loans on the LAR that are short terms. Examiners have said that we must look at the source of repayment when determining if loan is temp financing. For example: loan to "flip" (purchase,fix up,resell) would be considered HMDA reportable but a loan to purchase then resell would be temp financing. Does this sound correct? We are now struggling somewhat with the definition when before we thought we were okay.

That's short term financing, not temporary financing.

I'm a little confused to what your examiners are stating. Both of those examples do not seem to be temporary financing to me. Temporary financing is, generally, a short-term loan with the repayment being another loan <i.e. permanent financing>.

FWIW - I agree with Dan. . . . Your examiners are incorrect in saying:
1. Purchase / Fixup / Sell = Is reportable
2. Purchase / Sell = Is not reportable

We have also thought that the examiners were wrong but they have made us scrub 2 years of LAR entries. We had been reporting both on the LAR because 1. neither one would be replaced by other financing and 2. we considered it also as short term, not temporary financing.
Any suggestions on making them see it our way or are we just stuck with their interpretations?

Is this the opinion of your examiner or your regulator? If the examiner then it needs to be escalated up the ladder. And FWIW I would not do a scrub until I received my final exam report ordering the scrub after I exhausted all my appeals.

The loans you are describing are short term home purchase loans. They are not temporary financing because there is no intention of the loan being replaced by longer term financing arrangements.

It is coming from our regulators. I completely agree with you on the definition. I've passed this along to mgt so hopefully they can resolve this. Thanks for your input!!

Just so we are clear. When you say regualtor you mean it is coming from the FDIC, OCC, NCUA or whoever your regulator is and not just from the field examiner conducting the exam.

If you are FDIC, the following may help your cause. And the purchase of a home for resale does not meet the bridge or construction loan exemption. I can't give you any other ammunition. All I can say is that I disagree with the interpretation that you are being given.

May 29, 2002

Bulletin Number: CHIRO-07-2002

HMDA and ‘Temporary Financing’

One area of the Home Mortgage Disclosure Act (HMDA) and Regulation C that continues to confuse reporters is the exclusion for ‘temporary financing’. In this message, we will try to clarify the term ‘temporary financing’ and discuss how many banks are incorrectly applying this exclusion.

Regulation C and the HMDA: Getting It Right guide (HMDA Guide) do not define ‘temporary financing’. However, Regulation C and the HMDA Guide do provide a good foundation for understanding what ‘temporary financing’ means. Section 203.4(d)(3) of Regulation C provides some insight by stating “Temporary financing (such as bridge or construction loans).” The HMDA Guide uses similar phrases in several parts. On page 10 under “What Types of Transactions Are Excluded?” it states “Construction loans and other temporary financing (but construction-permanent loans must be reported).” On page 7 of Appendix A under “Data to be excluded”, it states “Construction or bridge loans and other temporary financing.”

Temporary is defined in the dictionary as “lasting for a limited time”. Based upon the dictionary definition and the clues in Regulation C and the HMDA Guide, ‘temporary financing’ is short term financing that is only used until other financial arrangements to pay can be made. Accordingly, looking at the nature of the credit and how it is to be repaid is the only way to determine if it meets the ‘temporary financing’ exclusion (emphasis added).

If we look at a construction or a bridge loan (specifically defined in HMDA as temporary), we see that the payment of the construction or bridge loan is usually from another loan (a mortgage with some scheduled duration to pay for the home) or sale of an existing home. At the time the construction or bridge loan is extended the bank knows that it will be paid from another loan or an asset sale. Therefore, the construction or bridge loan was only made until other financial arrangements to pay could be arranged and is temporary financing. Similarly, construction-permanent loans must be reported because they include an arrangement to pay.

Examiners have reported various incorrect methods used by banks to define ‘temporary financing’. Most of these methods are based on the establishment of an arbitrary loan length. For example, some banks are establishing a policy that any loan with a maturity of less than one year is a ‘temporary financing’. This type of an approach will almost always lead to disclosure errors. Banks must look at each loan to make a proper determination.

If you have any questions concerning this information, please contact us by e-mail at SCANS@FDIC.gov or call us at the Banker compliance Hotline 312-382-6926.

Please download the article "HMDA Temporary Financing" at our website and show it to your examiners:
http://www.bankerscompliance.com/compliance-resources/free-downloads.htm

If they disagree, send us an email and we'll back you up.