Hi All,

I have a commercial loan that is being modified with new money, new rate, new term, ETC... It does have a dwelling as collateral and the purpose is for Home Improvements (Improving the apartment complex). There will not be a new note number. Is this loan HMDA reportable? If so, is only the new money reported? Usually true modifications are not HMDA reportable, but with the new money being added I am not so sure.

I've never understood how new money can be added using a modification agreement. But I guess that's a matter of state law. Modifications are not reportable.

Just because you're not giving something a new note number doesn't mean it's a modification. I agree with swiggles that with all the 'newness' of this deal, it's not a modification but rather a refinance that should be reported as home improvement.

I just got a response from HMDA Help. Modifications are not reportable. My next question is, does anybody have a definition of what a modification is? Or where I can find one???

There is no definition that I know of but typically, if the original obligation is satisfied and replaced, it's a refinance. Modification Agreements don't "satisfy and replace." Modification Agreements modify.

Just a FYI:

The Second Quarter 2011 issue of Consumer Compliance Outlook had a good Q&A:

Q: If the bank modifies, but does not refinance, a temporary construction loan into permanent financing, does this loan become a HMDA-reportable loan?
A: Yes. Comment 203.2(h)-5 explains that when permanent financing replaces a construction-only loan, the loan should be reported for HMDA. In addition, construction-permanent loans must also be reported for HMDA. In essence, the bank has replaced its temporary construction loan with permanent financing through this loan modification. Because it is no longer a temporary loan and has not been previously reported, it should be reported as a home purchase loan if it meets Regulation C's definition of home purchase.

5. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regulation C and is not reported.

I didn't see anything in the OP's post that said the original note was for construction.

A modification is defined as a change in one or more of the terms of the original note.
The 'new money, new rate, new term, ETC' still has me convinced this should be treated as a refinance and reported as HI.

The loan is not a construction loan. This is some information I was able to get.

MECAs. The Board did not propose any change regarding the status of modification, extension, and consolidation agreements (MECAs). MECAs are not reported because they do not meet the definition of a refinancing (satisfaction and replacement of an existing mortgage loan). A few commenters asserted, however, that MECAs should be reported because they substitute for traditional re-financings in some states, such as New York and Texas, to avoid mortgage recording fees and taxes.

The final rule does not include MECAs as reportable under HMDA. The existing definition of a refinancing establishes a bright-line test for reportable transactions. The Board believes that MECA data may be useful in certain instances, but that, under the existing loan classification scheme, the advantages of a bright-line test for determining whether a transaction should be reported—especially in reducing compliance burden— outweigh the benefits of additional data on these transactions. Therefore, the Board has not revised the definition of refinancing to include MECAs.

Bottom line question still remains.
Will this satisfy and replace an existing note?
Or, will it reference and actually modify an existing note?
The only information in the original post is that 'There will not be a new note number.'
That is not enough to make this a modification.

I would think it would be reported as HI, because of the fact that new money was given. It wasn't just a modification--it gave new money for a reason--home improvement.

But as Truffle Royale indicates, it goes back to what type of document is being used to accomplish this to determine if it's reportable or not.

IMHO, if this is a CIT we would not report it. You're not replacing the note and you've already reported the origination (I assume).

This happens frequently with commercial loans, and we do not report the CIT, even if additional funds are disbursed.

As much as I agree with TR's and JWills' thought process concerning new money being advanced the fact remains if the original obligation was modified and not refinanced then the transaction is not subject to reporting.

Agreed, Dan. Still waiting for clarification from OP on exactly that point.

The bank is using a modification agreement and is modifying the existing note. It does not meet the definition of a refinance per HMDA. I do believe with all of the evidence that I have received that modifications are not HMDA reportable.

Reviving this to get clarification...

Our standard practice has become to modify maturing short term notes via a change in terms agreement. If we have a six month loan that we know that prior to the end of that 6 mo period that we will term it out with a 5 year balloon is either portion reportable?

Not reportable if the term out is done by modification/change in terms. If you refinance with a new note paying off the existing debt it would be reportable.

Circling back around to this. This is from a 2011 Consumer Compliance Outlook from the FRB:

If the bank modifies, but does not refinance, a temporary construction loan into permanent financing, does this loan become a HMDA-reportable loan?

Yes. Comment 203.2(h)-5 explains that when permanent financing replaces a construction-only loan, the loan should be reported for HMDA. In addition, construction-permanent loans must also be reported for HMDA. In essence, the bank has replaced its temporary construction loan with permanent financing through this loan modification. Because it is no longer a temporary loan and has not been previously reported, it should be reported as a home purchase loan if it meets
Regulation C’s definition of home purchase.

I'm just trying to understand. A construction only loan that is modified into permanent financing would be HMDA reportable at the time of modification. A temporary loan for a purchase and improvements (let's say it was done as a temporary to give time to improve and get ready for secondary market but ends up not qualifying come maturity time) is not HMDA reportable if done via a modification agreement at maturity.

Not sure I understand the rationale of the second one not being reported since it hadn't been reported originally and won't when it's modified. I guess this is one of those instances where it doesn't make sense other than that's what the reg and guidance says???

If the original loan was a temporary purchase/improvement and is now being modified to perm (and has never therefore been reported as a purchase), I could see reporting it as it is the equivalent of the construction/perm decision made by the Fed when they threw that one out there a few years ago.

Likely, there are some of those out there not being reported because of the modification aspect.

Be consistent, but in your example, I could go with the reportable decision.