I’m hoping that you can help me with a HMDA question. We have a commercial loan (participation) that is for the construction of apartments. The initial term is 36 months with payments of interest only. As a construction loan the ultimate source of repayment will be another loan. The borrower will have one two year options to extend the maturity, which they can elect as long they meet a performance test (have enough of the apartments leased to pay expenses). The extension is meant as temporary extension to allow the borrower to get permanent financing. At the time of extension the interest rate will be fixed and will be based on the then current Standard Amortizing FHLB 5/20 rate plus a margin with monthly payments of P&I based on 25 year amortization.

I know that simply because the loan is for construction doesn’t necessarily mean that it is exempt from reporting; and that simply the term being 36 months doesn’t mean that it has to be reported. I’m concerned because of the fact that we are telling them up front that we will extend if they meet the performance test; the rate calculation is set and they will be paying both P&I – and of course they would be using rental income to make these payments – do these things makes this reportable?

We don't report any construction loans (except a couple of construction to perm loans)

Per GIR "Transactions Not to be Reported" (Pg. 8 2013 GIR) -

The following transactions are excluded from reporting under HMDA:

*Construction loans and other temporary financing.


This is also reiterated in Appendix C under 14(d) "Excluded Data"


As you stated in your post, "The extension is emant as temporary extension to allow the borrower to get permanent financing."

Are construction loans to a business ever reportable? If a business builds a spec home then the source of repayment would be the sale of the home. It would not be temporary.

Constructions loans to builders are not reportable if the loan is to the builder and home is to be sold on spec to a consumer. If the bank made the permanent loan to the purchaser that loan would be reportable.

I agree. Another reportable loan is a loan to purchase an already built home, renovate it and sale it. This would be a short-term purchase loan. Many banks refer to this as a construction loan because it has multiple draws for the renovation period, but the home is already built, so it doesn't meet the definition of construction (initial) or temporary financing.

Is there a time limit on what would constitute temporary financing? We have two separate loans to a builder to build a spec home (1 loan) and a model home (2nd loan) with a three year term. The construction won't last three years obviously and both homes will be for sale. The take out plan should the homes not sell in the three year term would be for the developer to purchase the homes from the builder. Are these reportable as purchases or would they be considered temporary/construction loans? It's been many years since we've had any loans like this so I'm a bit rusty on the subject. I appreciate any feedback.

There is no defined time limit on temporary financing, but it gets hard to argue it's temporary when the term gets long. If the construction period is 3 years, then it must be quite a house, but it's still a construction loan that is not reported.

I wouldn't look at the take out plan. The first plan is to sale the homes. If you get to a point where they don't sale and the developer seeks a loan to purchase the homes, then there will be a new application and that would get reported.