Loan proceeds were to:
1.) reimburse borrower (& property owner) for home improvements made to subject property (single family rental). The actual loan proceeds were not directly expended on home improvements. AND
2.) Pay down principal balance on another commercial loan secured by other 1-4F dwellings (rental). We did not pay off or replace an existing lien (this, IMO, is not subject to HMDA but wanted to fully disclose the entire loan purposes of this loan request)
Is #1 subject to HMDA reporting?

No. And you're also correct that paying down (but not off) a dwelling-secured loan doesn't constitute a refinance.

Interesting; our HMDA expert has indicated that it would be subject to HMDA reporting based upon #1. I suspected that since the loan proceeds were not directly expended on HI it may not be subject to reporting and you confirmed my suspicions. Would you be willing to provide a bit of insight as to why? Greatly appreciated.

Agree with raitchjay. You have to look at the purpose and proceeds of the loan. The home improvements were completed prior to the loan and the purpose of this loan was to reduce the outstanding balance on the other loan. None of the funds were used for home improvement and it is not a refinance.

This loan sounds like one we have several of. A commercial customer has a line of credit they use to purchase rental property. Then they also use the line to fund home improvements. Once the improvements are done, they obtain permanent financing for the rental property and apply the funds to reduce the line of credit back down so they can purchase additional rental units. The new loan is not HMDA reportable as none of the funds are for home improvement and does not satisfy and replace another loan.

I'm interested in hearing what your HMDA expert based their opinion on and how they would have reported this. It's not a purchase or a refi or HI.

The use of the proceeds dictates if the loan is subject to reporting and none of the loan proceeds were used for HI or to refinance another dwelling.

I agree this loan is not reportable.

Background: We are not a HMDA reporting bank (no MSA's in our footprint) as such do not have much institutional knowledge/experience with HMDA. We recently hired a new employee that is a self proclaimed expert. I've recently been given responsibility for CRA and quickly realized I need to be able to indentify "HMDA eligible" loans so as to not report them as a small business loan. I've learned as much about HMDA as I have CRA but every so often have the 'not in any text book' situation.
My gut told me this probably didn't meet the definition and you all confirmed that. I haven't gone back yet to question the new hire.

Oh fun and joy!