Customer had a lease-purchase agreement with LLC 1-4 family property owner. Customer applies to Bank to pay out (purchase) LLC for 1-4 family property.

Does the payout of the lease-purchase agreement constitute a refinance for HMDA purposes? HMDA GIR states "A refinancing is any dwelling secured loan that replaces and satisfies another dwelling secured loan to the same borrower".

Does the lease-purchase agreement constitute a loan?

LLC issued an "Act of cash sale". The bank required a downpayment as if it was a purchase situation.

I'm trying to make sure we report this correctly.

Thanks, in advance.

Disclaimer: i have zero experience with your scenario, but it sounds to me like your borrower does not yet, without your loan, fully "own" the home. It sounds like your loan will actually purchase the home (transfer ownership from the LLC to your borrower). Hopefully, this helps and hopefully, i'm correct.

We treat these transactions as refinancing. Some treat them as purchases. However the borrower has obtained ownership to the property, although they may not have full title, through the contract and the contract is secured by the dwelling. In addition even though you may treat this as a purchase for HMDA reporting for Reg. Z purposes you have to treat it as a refinancing and provide rescission. See the Commentary to 1026.2(a)(24).

The least Purchase contract I have been involved do not have a transfer of title until the purchase clause is satisfied. Since you are leasing the property until that time, it would be a purchase not a refinance.

None of the contracts I have dealt with have a transfer of title until the contract/lease is satisfied either. The payoff/refinancing of these contracts/leases however do not meet the definition of a residential mortgage transaction. From the regulatory cite I provided above.

The term does not include a transaction involving a consumer's principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title.

The contract/lease to own is an acquisition of some interest in the dwelling by the consumer. This is our basis for treating and reporting these transactions as refinancings.

Thanks for the thorough explanation of this scenario Dan. It was helpful (at least to me).

While working on another HMDA project, my notes referred me to The 2nd Q 2011 Consumer Compliance Outlook. Happened to notice that one of the HMDA Q&As is about a loan to payoff a contract for deed.
http://www.philadelphiafed.org/bank-reso...r/cco_q2_11.pdf

Basically it is stating that it - generally should be reported as a home purchase loan...

Check page 5 - #13

Dan, I have seen it done both ways. We have always treated it as a purchase, because we could not give equity in house without a non refundable deposit (which for the most part was minimal) and the additional monthly rent (again minimal) was hard to prove.

I'm not saying either way is right or wrong. I'm just letting you know why we report the way that we do. As I mentioned in my original post some do treat them as purchases.

Make your decision, document that decision and then make sure all those loan types are reported the same.

I agree with^^^