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#1963131 - 09/19/14 02:03 PM Unsecured flip
CO Officer Offline
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We made an unsecured loan to a customer to purchase, renovate, and resell a dwelling. The term is 9 months.

The intent is to sell the property and pay off the loan with the proceeds from the sale.

There is no intent for the borrower to obtain permanent financing.

We initially believed this was HMDA reportable, as the Q&As state that investor flips are reportable as a purchase.

However, we also know that purchase loans are only reportable if the loan is secured by a dwelling.

Should we report this loan as a home improvement loan or leave it off the LAR?

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#1963187 - 09/19/14 03:12 PM Re: Unsecured flip CO Officer
Ski Offline
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South Louisiana
So you have an unsecured purchase money loan. Not reportable since it does not meet the criteria of purpose and collateral (purpose to purchase but not secured by a dwelling).

Not reportable as a home improvement since home purchase (PRIMARY PURPOSE) trumps home improvement. If the primary purpose was to improve and unsecured then you would only report if you classified, in any way, home improvement loans at your institution.

So in my opinion, not reportable at all.

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#1963200 - 09/19/14 03:31 PM Re: Unsecured flip CO Officer
raitchjay Offline
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I disagree. If a loan has 2 or more reportable purposes, then purchase trumps home improvement which trumps refinance. I don't see anywhere in Reg. C or the GIR that says a non-reportable purpose means you can stop looking at other HMDA reportable purposes for the same loan. To me, the same principle would lead you not to report a loan that was to refinance a motor vehicle and a home, since refinancing a motor vehicle isn't HMDA reportable. I'm probably in the minority in this opinion, but that's how i see it.
Last edited by raitchjay; 09/19/14 03:35 PM. Reason: add emphasis
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#1963217 - 09/19/14 03:48 PM Re: Unsecured flip CO Officer
raitchjay Offline
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Of course, all of this is moot if you don't internally classify non-dwelling secured HI loans as HI, which most banks don't do.
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#1963461 - 09/19/14 09:57 PM Re: Unsecured flip CO Officer
David Dickinson Offline
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Central City, NE
I believe this is a purchase. Since it is not dwelling secured, it is not HMDA reportable.
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#1963576 - 09/22/14 03:50 PM Re: Unsecured flip CO Officer
raitchjay Offline
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The OP stated that the purpose of the loan was to purchase AND renovate a dwelling. If someone got a CD-secured loan of $50,000 with $45,000 of it to buy a new car....and $5,000 of it to improve their dwelling, would that not be reportable (again, assuming the bank classifies and reports non-dwelling secured HI loans)? I don't see where having one non-reportable purpose for a loan knocks out another reportable purpose for the same loan. Again, it's a total non-issue for banks that don't classify and report non-dwelling secured HI loans, but obviously, some banks do face this.
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#1963605 - 09/22/14 04:56 PM Re: Unsecured flip CO Officer
RR Joker Offline
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I am leaning towards raitchjay's opinion. The loan is "in whole or in part" for HI...regardless of the primary purpose of the loan. Since it's not a reportable purchase, then HI is next in line due to the 'part' being borrowered to improve a dwelling.

It appears short-term and not temporary in nature, so I would consider it reportable if, as Raitchjay said, the insitution reports unsecured HI loans.

(1)
A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located
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#1964447 - 09/24/14 09:26 PM Re: Unsecured flip CO Officer
David Dickinson Offline
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Central City, NE
I see your point Raitchjay and Joker, but I look at this differently. Forget HMDA for a minute. This is a purchase loan. No one questions that. Now add HMDA - since it isn't dwelling secured, it doesn't technically meet the definition of "purchase". Therefore, it's not reported.

I think this is such an odd thing that you could report it or not, but document your reasoning either way. If an examiner disagreed and wanted to cite me, I'd pull out my documentation and explain the reasoning and then blow it off.
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#1964848 - 09/25/14 08:53 PM Re: Unsecured flip David Dickinson
Ski Offline
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South Louisiana
I ran this by our regional FDIC Compliance contact.

He said, ignore the first part since it does not meet the reportable criteria but the second part (renovate [HI]) makes it reportable as a HI if you classify it as such.

Chances are that a financial institution would classify this as a purchase money loan, so it would not be reported.

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#1964854 - 09/25/14 09:06 PM Re: Unsecured flip CO Officer
raitchjay Offline
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Ski, if a bank classifies non-dwelling secured HI loans on its books for HMDA, it can't pick and choose which ones it deems to so classify.
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#1965055 - 09/26/14 04:19 PM Re: Unsecured flip CO Officer
David Dickinson Offline
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Central City, NE
We could debate this forever. It falls through the cracks of HMDA guidance. Just pick your opinion and document why you reported or didn't. I could support a bank's decision either way.
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#1965669 - 09/30/14 03:04 PM Re: Unsecured flip Ski
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A FRB rep said the same thing to us Ski. It doesn't qualify for the purchase, but it does meet the requirements to be reported as a home improvment loan purpose.

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