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#1350972 - 03/02/10 03:32 PM Business LOC HMDA Reportable
Dan Persfull Offline
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I have once again had the question asked if business LOCs are optional reporting because the person asking the question has been told that if the business LOC was secured by anything other than a 1-4 dwelling it didn't meet the definition of a HELOC, and also that the refinancing of a HELOC was not optional due to the reg referring to a home purchase or home improvement.

These statements are in error. All open-end LOCs are optional reporting.

203.4

(c) Optional data. A financial institution may report:
(1) The reasons it denied a loan application;
(2) Requests for preapproval that are approved by the institution but not accepted by the applicant; and
(3) Home-equity lines of credit made in whole or in part for the purpose of home improvement or home purchase.

Section 203.2(f)

Home-equity line of credit means an open-end credit plan (emphasis mine) secured by a dwelling as defined in Regulation Z (Truth in Lending), 12 CFR part 226.

Reg Z defines an open-end credit plan as follows:

(20) Open-end credit means consumer credit extended by a creditor under a plan in which:
(i) The creditor reasonably contemplates repeated transactions;
(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and
(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

Reg C defines a dwelling as follows:

Dwelling means a residential structure (whether or not attached to real property) located in a state of the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. The term includes an individual condominium unit, cooperative unit, or mobile or manufactured home.

Therefore an open-end credit plan (as defined by Reg. Z) secured by a dwelling is optional reporting. But Reg Z implies "consumer" credit. However, from the FAQs;

Refinancing --- line of credit. If a dwelling-secured line of credit satisfies and replaces another dwelling-secured obligation, is the line required to be reported as a "refinancing"?

Answer: No. A dwelling-secured line of credit that satisfies and replaces another dwelling-secured obligation is not required to be reported as a "refinancing," regardless of whether the line is for consumer or business purposes.

This Q&A unequivocally states a dwelling secured line of credit is optional reporting regardless if the purpose is business or consumer.

Therefore one has to conclude from the Q&A that dwelling secured lines of credit are optional reporting, regardless of the loan's purpose.


Hope this helps anyone that is confronted with this question in the future.
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#1350975 - 03/02/10 03:37 PM Re: Business LOC HMDA Reportable Dan Persfull
Mrs. Rizzo Offline
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Curled up by the fire...
Printing and putting this in my HMDA bible.
Thank you, Dan!!!
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#1351272 - 03/02/10 09:12 PM Re: Business LOC HMDA Reportable Dan Persfull
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Thanks, Dan. That was my understanding as well, but I never have--or could have--documented as well as you did.
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#1354219 - 03/09/10 02:27 PM Re: Business LOC HMDA Reportable Sinatra Fan
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Dan, This is absolutely, without a doubt, the best explanation of this rationale ever. Thank you for taking the time to put this down on "paper" in easy to understand terms. I am sure I speak for many others when I say THANK YOU!
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#1514445 - 02/24/11 09:47 PM Re: Business LOC HMDA Reportable Mrs. Rizzo
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Between the lines
Originally Posted By: Rizzo
Printing and putting this in my HMDA bible.
Thank you, Dan!!!


DITTO!! As I was reading this, I am thinking, "gotta print and put in my HMDA binder".

And that's why I call him Dan, the Man!
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#1818790 - 05/30/13 06:31 PM Re: Business LOC HMDA Reportable Dan Persfull
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Maybe I'm thinking too hard or creating more trouble for myself than I need to be, but I'm wondering what the correct way to handle an open end commercial line of credit that is NOT secured by a dwelling but IS a home improvement loan as defined in Reg C. We opt not to report HELOCs, but as this doesn't meet the definition of a HELOC because it is not secured by a dwelling, should I report it for HMDA?

I can't find anything that says that reporting of all open ended credit is optional, only home equity lines of credit.

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#1818842 - 05/30/13 07:34 PM Re: Business LOC HMDA Reportable Dan Persfull
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Following the BOL HMDA Flowchart (http://www.bankersonline.com/compliance/2004_HMDA_Flowchart.pdf) I got a "NO" on whether HMDA applies. While the loan is HI (and I'm assuming you are classifying it as such under HMDA), further along in the questioning, the fact that the loan is an LOC rules it out (assuming you do not report LOCs). Do others get the same by following the flowchart?
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#1818874 - 05/30/13 07:58 PM Re: Business LOC HMDA Reportable Dan Persfull
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OK
I agree with Mani. Would be similar to if you classified the loan as HI, yet it was temporary financing, therefore exempt.
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#1863951 - 10/22/13 09:28 PM Re: Business LOC HMDA Reportable Dan Persfull
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Dan, researched a bit about lines of credit for HMDA. First, we do not report lines of credit, commercial or consumer. But looking at your answer from 2010, DAN, and your emphasis on open ended lines, how would you view a non-revolving commercial line of credit with periodic draws to purchase 1-4 dwellings? Wouldn't the fact it is non-revolving mean it would then be reportable for HMDA because it isn't considered a line by open end definition?

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#1863967 - 10/22/13 10:01 PM Re: Business LOC HMDA Reportable Dan Persfull
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Between the lines
Optional HMDA reporting - open end, revolving LOCs.
You can opt to report or not report these, naturally depending on it meeting HMDA - purchase, HI or refi.

Must report closed end, non-revolving LOCs if they meet HMDA - purchase, HI or refi.

"Wouldn't the fact it is non-revolving mean it would then be reportable for HMDA because it isn't considered a line by open end definition?" Yes, report if purchase, HI or refi.
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#1863985 - 10/22/13 10:49 PM Re: Business LOC HMDA Reportable SMQ, CRCM
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Okay, to verify, it is considered a line in that the draws can vary at different times and is totally up to the customer. There are no fixed payments, but interest only on what has been drawn, till maturity. So, what amount do I report? The full line that is available or wait till year end and see what the balance is then? I guess because the draws have not occurred yet, that would liken it to a revolving line.

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#1863989 - 10/22/13 11:13 PM Re: Business LOC HMDA Reportable Dan Persfull
Kathleen O. Blanchard Offline

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The structure of this non-revolving line is unusual. Does it mature at year end? What happens to the funds that have been drawn for purchases of residential real estate? Are the funds termed out, making this non-revolving line temporary in nature?

Often this type of line is drawn for each purchase and the individual draws are termed out on individual notes secured by the property purchased.

What is the collateral of the non-revolving line?
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#1864034 - 10/23/13 01:07 PM Re: Business LOC HMDA Reportable Dan Persfull
rlcarey Offline
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I agree, it is hard to picture the total structure of this loan and need more information.
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#1865802 - 10/28/13 11:13 PM Re: Business LOC HMDA Reportable Dan Persfull
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Randy & Kathleen, was out for a couple of days, so couldn't respond back to your questions. Here is the the structure: Non revolving line of credit, committment amount is $1.3 million. Advances to be done during first 90 days to purchase 10 SFR's, interest only, then convert to P&I for 48 months. The committment amount to be held in a bank control account, then advanced as requested for the purchases.

So, again, since not open ended, would report for HMDA, but amount is tricky until the end of 90 days if doing quarterly HMDA input. Figured to do total commitment amt, not just advanced amount. But would that really be correct? After 90 days, could put full amount advanced if accessed if different from commitment amount.

It seems like the definition of Non revolving line of credit was used incorrectly. Any help is appreciated.

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#1865903 - 10/29/13 02:37 PM Re: Business LOC HMDA Reportable Dan Persfull
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In this case, since it is kind of a unique situation, I would opt to report each transaction separately rather than as one entry:

2.
Property location—multiple properties (home purchase/refinance of home purchase). For a home purchase loan, an institution reports the property taken as security. If an institution takes more than one property as security, the institution reports the location of the property being purchased if there is just one. If the loan is to purchase multiple properties and is secured by multiple properties, the institution reports the location of one of the properties or reports the loan using multiple entries on its HMDA/LAR (with unique identifiers) and allocating the loan amount among the properties.
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#1866008 - 10/29/13 04:21 PM Re: Business LOC HMDA Reportable rlcarey
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Thanks Randy, will do each separately. One loan, but multiple advances and these could stretch till next year for a different HMDA year. Ugh!

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#1866112 - 10/29/13 06:38 PM Re: Business LOC HMDA Reportable Dan Persfull
Kathleen O. Blanchard Offline

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All 10 will have the same maturity date since this line extends once the initial 90 days is up, correct?
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#1866116 - 10/29/13 06:42 PM Re: Business LOC HMDA Reportable Dan Persfull
rlcarey Offline
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KB - Are you thinking about treating the 90 day period as temporary financing?
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#1866120 - 10/29/13 06:49 PM Re: Business LOC HMDA Reportable Dan Persfull
Kathleen O. Blanchard Offline

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No, I was trying to understand why splitting it out 10 ways, which is allowed would make a difference if the entire thing is termed out at once. If this happens within a HMDA year, its easy because you will know what the final term out amount is (what if they only buy 9). Across HMDA years, it gets icky.

And since it is one note that has the term out provision within it, that likely doesn't matter.

Will one master mortgage be filed, listing all properties? What is the collateral at the outset?

I still don't quite get it. It is an ugly way to set up a loan of this type.
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#1866184 - 10/29/13 07:57 PM Re: Business LOC HMDA Reportable Kathleen O. Blanchard
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Yeah, it is definitely a hybrid structure. The loan terms out, after the 90 days (int only during draw period, taking it into the new year slightly, then fixed for a maturity in 48 months.Good structure for the bank and borrower, but crazy trying to figure out HMDA. Decided to do each prop individually, as there is not just one or master mortgage. Collateral at the outset is added each time an advance is used to buy the prop.

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#1866289 - 10/29/13 09:32 PM Re: Business LOC HMDA Reportable Dan Persfull
Kathleen O. Blanchard Offline

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You keep dropping clues. What do you mean "there is not just one or master mortgage"?

Will you have 1 note secured by ten properties or 10 separate notes once it terms out?
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#1866529 - 10/30/13 03:57 PM Re: Business LOC HMDA Reportable Kathleen O. Blanchard
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There is one note only. There will be 10 liens, each lien put on as a property is bought. The property addresses were known at the inception of the loan, however, they are purchased over the 90 days as the advances are made, not all at once. There is a small likelihood a property listed may not be bought and a substitute put in its place, so truly can't confirm the 10 props till each are purchased with the 10 advances.

I know this is ugly from a HMDA perspective, but commercial loans are often customized like this here.

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#1866558 - 10/30/13 04:29 PM Re: Business LOC HMDA Reportable Dan Persfull
Kathleen O. Blanchard Offline

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I would be inclined to report the full amount against the first property purchased and taken as collateral and be done with it.

If it was all going to happen within a calendar/HMDA year, I might break it out but if you cross the year end, I would just go with the first property.
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#1866579 - 10/30/13 04:43 PM Re: Business LOC HMDA Reportable Kathleen O. Blanchard
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Thanks Kathleen. I think you are correct.

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#2175996 - 05/01/18 01:34 PM Re: Business LOC HMDA Reportable Dan Persfull
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I think Kathleen's answer kind of solves another thread that I was posting in for 2018 HMDA. 2018 makes it a bit more pertinent, as it is no longer optional to report lines of credit. This is my understanding as well. There has to be a HMDA dwelling securing the initial establishment of the LOC, and a "Purchase," Refinance," or "Home Improvement" needs to have taken place. I would not see how to report subsequent draws for purchasing existing properties. The LOC has already been established and would have been reported with the full committed amount at establishment of the Line.

If no HMDA dwelling secured the loan at the time of the LOC account opening, then it seems to be a bit more tricky, but, again, it would seem that subsequent draws are not reportable by themselves. I would hazard to say that such an LOC is not HMDA reportable at all.

In situations where separate notes are created with the rental purchases with funds from the line, then it is my understanding that such loans would be HMDA reportable as "Purchase" loans.
Last edited by JPC; 05/01/18 01:35 PM.
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