I have read many of the threads on temporary financing and bridge loans and I haven't seen this question asked.

If a bridge loan is meant to be paid off by permanent financing, does the permanent financing have to be with the same lender to truly be considered temporary? Or is it just permanent financing anywhere? Here is the situation:

Customer A purchases foreclosed properties from banks, locates investors and sells the property. Customer A recommends us to the Customer B, the investor, for the short-term financing. We make a 2 year loan with interest only the first 3 or 6 months and then they pay P&I and a balloon at the end. We purposely structured the program so that they have time to rehab and find a renter. They do not intend to sell the house, it's strictly a business purpose loan. There is no commitment from us to refinance the loan at the end of 2 years. The intent is for them to refinance through our mortgage dept. into the secondary market or elsewhere.

We have viewed these loans as purchases and included on our LAR. Now we're being told by our regulator that the loan is temporary like a bridge loan and not HMDA reportable.


I've read several things stating that a balloon can't be temporary financing. The only way this scenario would be considered temporary financing would be if we do the permanent financing.

First, a bridge loan is the gap financing between the purchase of the new and the sale of the old. What you describe doesn't sound like a bridge loan. It sounds like a "flipping / splash and dash / investment / rehab" (whatever you want to call it) loan. This sounds like a purchase to me.

The FFIEC FAQ state:
". . . A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).

David - To be clear, these are investment properties. The Investor is buying from the custoemr who is doing the Fix & Flip. Sometimes he doesn't even have to fix them up, he just buys at a discount from the banks and resells for a profit. Then the Investor has the opportunity to rehab if it's needed and they rent out. So the Investor is not doing the Fix & Flip, which is why the examiner is saying it is a temporary loan. I've sent an email to HMDA help on this too.

Doesn't matter if they are investment properties, they are still reported as home purchases under the guidance provided by David.

The FAQs he referred to are at http://www.ffiec.gov/hmda/faqreg.htm

The regulator is wrong in their assessment. These are short term loans and are reportable.

Dan - The regulator is quoting this as his reason for why we should not report.

Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?

Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).


The loan is designed to be repaid by the sale of the property not by it being refinanced. Your regulator is wrong.

I agree with Dan and David. When the loan is to purchase a property for re-sale it is reported as a purchase. I do not see how the regulator could interpret the guidance any other way. It is very clear.

I don't want to keep belaboring the point, but these are two separate deals. The original purchase by Customer A to fix and flip. We report these. This is not the transaction in question.

Customer B buys the property in the flip. We have a program we never intended to be temporary financing. This is the 2 year balloon loan for the purchase of the property by Cust. B.
The anticipation is that they will be refinanced by Cust. B and not change hands. We don't intend to do the refinance at our bank.

Do you still believe that this is not temporary financing as explained in the FAQ you have referenced?

How does your 2 year balloon loan qualify as a "temporary loan"? The only way I would buy into that is if it interest only payments and you had a commitment to take the loan out at maturity.

The two year balloon is the permanent financing as for as you are concerned. When your balloon comes due the borrower has the ability to pay it or refinance it.

These loans are short term loans, not temporary loans.

I would also want to know the reason for the 2 year balloon. If this is temporary financing (and I would also expect interest only, with a commitment for take out), what is the reason for this temporary financing? Why the 2 year period? Many many commercial purchases (of res or non-res real estate) are done on short term balloons because the bank won't provide longer term financing.

Exactly! We used to do them for 5 years, but changed it to 3 years and now they are down to 2 years. I'm not certain, but I believe the second purchaser was running into issues with financing because of the property being a flip.

I appreciate your input and patience. I'll check back if I need any further guidance.

Banks call them mini-perms. They are the financing, not temporary financing. It is for bank liquidity, not for the customer (of course if he can't pay you off, your liquidity will suffer.)

I received this response from HMDAhelp today. The regulator is going to take it back to the office to discuss and will let us know their final determination.

From HMDAhelp@frb.gov
"Yes, they sound HMDA reportable. If the institution is classifying them as permanent loans (regardless of any clauses), they should be reported as home purchases as long as they meet the definition of a HMDA reportable home purchase.

h) Home purchase loan means a loan secured by and made for the purpose of purchasing a dwelling.
Source: page C-3 of the 2010 HMDA Reporting Guide

The fact that the loans are made to investment property borrowers is irrelevant.

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