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#1898515 - 02/20/14 05:36 PM tearing down an old home and replacing
Bluesfan57 Offline
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Posts: 155
Peak 10 Breck, CO
got a situation that i was curious how other report.

Borrower had storm damage on her current primary residence. Damage was extensive enough to warrant tear/down and rebuild.

So borrowers tore down the home and did a construction loan to build the new home (on the dame piece of land, right next to the old foundation... actually were two homes on single parcel temporarily). We came back and paid off the construction loan with permanent financing. SHould this permanent financing be reported as Purchase, HI or refinance. I could litterally argue all three.

Report as Purcahse: this is the permanent financing to replace a construction only loan; Purcahse trumps everything else.

But a borrower cant purchase a home that she already owned.

Home Improvement: Obviously she improved the real property as she built a new home.

But its hard to justify callling it a HI loan when the HUD reflected the borrowers bringing in 10K to close. so no proceeds to improve, while realistically the construction loan did the improving.

Refinance: since the borrower already owned the damaged home, and paid off a construction loan with this permanent financing, report as refinance.


So I wanted to know, if anyone eles had had guidance for these types of situations.

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#1898520 - 02/20/14 05:45 PM Re: tearing down an old home and replacing Bluesfan57
Truffle Royale Offline

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She didn't even build on the original foundation, right?
So she constructed a totally new home.
Doesn't matter that it's on the same lot or next to the old foundation.
Construction perm = purchase for HMDA.

that's how I'd report this application.

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#1898521 - 02/20/14 05:48 PM Re: tearing down an old home and replacing Bluesfan57
Bluesfan57 Offline
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Peak 10 Breck, CO
correct, the home was built 15 feet away from the original foundation and yes this perm loan paid off the construction loan.

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#1898529 - 02/20/14 05:53 PM Re: tearing down an old home and replacing Bluesfan57
raitchjay Online
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OK
FWIW, i agree with TR.
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#1898530 - 02/20/14 05:54 PM Re: tearing down an old home and replacing Bluesfan57
JSD Offline
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USA
We have had the same situation in the past & rec'd two different opinions. Ours involved a settlement check by the applicant's insurance company. This was the response from HMDA Help:

Since the insurance company paid off the existing lien on the property and a new 30 year mortgage is being obtained, we suggest you classify the loan as a home purchase.

A senior FDIC examiner in Atlanta GA opined that it should be reported as a Home Improvement.

Only advice I give - pick one and be consistent! There is a belief by many on BOL that you build once and anything afterwards is HI. Some folks look to see if original foundation is retained.

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#1898536 - 02/20/14 06:01 PM Re: tearing down an old home and replacing Bluesfan57
Bluesfan57 Offline
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Joined: Feb 2011
Posts: 155
Peak 10 Breck, CO
im with you JSD, however we go with this we will be consistent.we just had our Compliance Officer advise us to go HI on a similar situation but not completely so i wanted another industry opinion before i make my recommendation.
Last edited by Bluesfan57; 02/20/14 06:01 PM.
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#1898537 - 02/20/14 06:01 PM Re: tearing down an old home and replacing Bluesfan57
Truffle Royale Offline

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JSD, I'd go along with the FDIC examiner if you told me they built on the same foundation. Otherwise, imho, you can't improve what doesn't exist. But hey! that's logical and we all know HMDA is totally (il)logical, right?

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#1898550 - 02/20/14 06:14 PM Re: tearing down an old home and replacing Bluesfan57
Rocky P Online
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#1898551 - 02/20/14 06:15 PM Re: tearing down an old home and replacing Truffle Royale
JSD Offline
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HMDA Help & FDIC wanted to know many more details - how first loan was paid off and was the original foundation being retained, etc - never a dull moment in the HMDA World!

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#1898569 - 02/20/14 06:45 PM Re: tearing down an old home and replacing Bluesfan57
Truffle Royale Offline

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All that nonsense just muddies up the water.
What difference does it make who paid what off?
KISS is the mantra for HMDA.

I'll stick with Dan that if you're building on the original house's foundation, it's HI.
If you're digging a new hole and starting from scratch, it's permanent financing of a construction loan which equals purchase.
That's what my HMDA procedure book outlines and what we all follow here.

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#1898583 - 02/20/14 06:53 PM Re: tearing down an old home and replacing Bluesfan57
raitchjay Online
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OK
I agree. I don't see it as gray.
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