I did not see it in a FIL. I got it through a SCANS bullentin out of Chicago. Here's the text:
Division of Compliance and Consumer Affairs 500 West Monroe, Suite 3300, Chicago, IL 60661 312-382-7500
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.
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.