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#1984535 - 12/22/14 02:11 PM HMDA& horse farm
donnac Offline
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I've read multiple threads on this issue, but I'm still confused & would appreciate guidance.

ABC Farm owns hundreds of acres for a working horse farm. The farm contains multiple 1-4 family dwellings, barns, acreage, etc. and has no liens on the property.

We're taking a 1st mortgage on the entire farm & ABC Farms will use loan proceeds to construct an office building on the farm. (84 month loan term)

Is this considered a home improvement loan for HMDA since they're improving the real estate upon which the 1-4 dwellings reside? Or, is it not HMDA reportable since none of the proceeds are being used to improve any of the 1-4 dwellings?

Thanks.

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#1984538 - 12/22/14 02:50 PM Re: HMDA& horse farm donnac
swiggles Offline
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I vote business loan....no HMDA.
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#1984558 - 12/22/14 03:18 PM Re: HMDA& horse farm donnac
awilli Offline
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I agree. Since all of the loan proceeds are business purpose to build an office building, it's not HMDA reportable. Another thing to consider is that temporary construction loans are not HMDA reportable either (although I wouldn't base your decision on that).
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#1984559 - 12/22/14 03:22 PM Re: HMDA& horse farm donnac
raitchjay Online
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OK
I've never heard of a temporary loan of 7 years. Where's this business purpose exemption in HMDA that everyone keeps speaking of? I'd have a hard time not reporting this loan.
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#1984565 - 12/22/14 03:28 PM Re: HMDA& horse farm donnac
TMatt87 Offline
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I would consider building an office building as improving the "real property on which the dwelling is located" and would report.
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#1984566 - 12/22/14 03:28 PM Re: HMDA& horse farm donnac
RR Becca Offline
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out of the frying pan...
There is no business purpose exemption for HMDA. If the loan is to improve the real property upon which a dwelling is located, it is reportable as a home improvement loan.

(In other words. I agree with raitch and TMatt.)
Last edited by RR Becca; 12/22/14 03:29 PM.
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#1984567 - 12/22/14 03:30 PM Re: HMDA& horse farm donnac
Kathleen O. Blanchard Offline

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From the Commentary:

"Mixed-use property. A loan to improve property used for residential and commercial purposes (for example, a building containing apartment units and retail space) is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property. If the loan proceeds are used to improve the entire property (for example, to replace the heating system), the loan is a home improvement loan if the property itself is primarily residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis. If the loan is unsecured, to report the loan as a home improvement loan the institution must also have classified it as such."
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#1984568 - 12/22/14 03:32 PM Re: HMDA& horse farm donnac
raitchjay Online
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Kathleen, IMO, that refers to mixed-use within a structure (the first example, for example). That's how i've always interpreted it anyway.
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#1984571 - 12/22/14 03:36 PM Re: HMDA& horse farm donnac
Kathleen O. Blanchard Offline

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It doesn't say that anywhere. You have a primarily business property and are building an office building.
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#1984573 - 12/22/14 03:42 PM Re: HMDA& horse farm donnac
raitchjay Online
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OK
I think we're going to have to agree to disagree.
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#1984599 - 12/22/14 05:16 PM Re: HMDA& horse farm donnac
swiggles Offline
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I'm on Kathleen's side....nanny, nanny, boo boo.
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#1984607 - 12/22/14 05:25 PM Re: HMDA& horse farm donnac
Princess Romeo Offline

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I agree with Kathleen - majority use of the property is commercial, and loan funds are for a commercial use building.

The Commentary simply uses a mix-use building as an "example" - it's not the be-all/end-all of the definition. The Commentary uses the language "property".


BTW - I know of a bank that got dinged in their exam for reporting loans that were NOT HMDA reportable.
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#1984610 - 12/22/14 05:27 PM Re: HMDA& horse farm donnac
RR Becca Offline
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out of the frying pan...
I can see the argument for both sides, and I think it might depend on whether or not the bank is a CRA data reporter. If we were, I would want to use this on my CRA data so I would exclude it from HMDA. We're not, so I would want to use it for HMDA (plus I've had examiners get huffy when they found margin notes about 'improvements' in similar loans). This is all assuming that the loan was even coded in such a way that it hit the HMDA radar to begin with. Either way, I would stick to the HMDA motto of 'be consistent' and make darn sure that I handle all similar situations the same way.
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#1984616 - 12/22/14 05:41 PM Re: HMDA& horse farm donnac
awilli Offline
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My bad on missing the "84 month loan term". Must have glazed over that. Don't normally see a 7-year term construction loan. (unless maybe it's a converting non-revolving loan).

I'm still not sure if it would be HMDA reportable. Within the commentary under Home improvement loan, "Mixed-use property. A loan to improve property used for residential and commercial purposes...is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property".

And the definition of Home Improvement includes "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"

My lingering question pertains to the statement under Mixed-Use: "...to improve the residential portion of the property". How would you determine what is the "residential portion" of the "100+ acre working horse farm"?
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#1984629 - 12/22/14 06:03 PM Re: HMDA& horse farm donnac
raitchjay Online
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OK
If you want to use the mixed-use test to exempt this loan then i don't see how you avoid exempting loans to buy convenience stores or the like where a residence is also located on the property and i don't agree with that.
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#1984675 - 12/22/14 07:19 PM Re: HMDA& horse farm donnac
Dan Persfull Offline
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Can't say that I agreed with the response when I received it but I have grown to accept it.

The following is from HMDA Help in response to a series of questions that I had sent them:

-----Original Message-----
From: hmdahelp@frb.gov [mailto:hmdahelp@frb.gov]
Sent: Wednesday, June 24, 2009 11:18 AM
To: Dan Persfull
Subject: RE: Mixed Use Property-a

The mixed-use property classification applies to a single building that houses both businesses and residential units AND to properties that contain both "stand alone" dwellings that are used as a dwelling only and other "stand alone" buildings used for business purposes only.

If you have a loan that meets the requirements for more than one loan purpose, the reporting hierarchy is home purchase, home improvement, refinance.

HMDAHELP.

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#1984747 - 12/22/14 09:42 PM Re: HMDA& horse farm donnac
Moman Offline
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Too bad they don't publish the FAQs they receive - only the bank asking the question to HMDA Help receives the answer that all of us in the trenches might benefit from!

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#1984873 - 12/23/14 05:19 PM Re: HMDA& horse farm Moman
donnac Offline
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Dan's posting of the HMDA Help reply is the first time that I've seen this written anywhere. Thanks for posting it.

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#1984918 - 12/23/14 06:46 PM Re: HMDA& horse farm donnac
RR Becca Offline
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out of the frying pan...
Me, too. Thanks, Dan!
Last edited by RR Becca; 12/23/14 06:46 PM. Reason: forgotten punctuation
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#1993602 - 02/05/15 01:11 AM Re: HMDA& horse farm donnac
Snowgirl Offline
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So we are primarily an Ag lending bank and have not been subject to HMDA due to not having a branch in a MSA. However, we will be branching into a MSA this year so next year we will have to report HMDA.

1. The majority of our loans are to our AG customers. And a lot of those loans are not for the purchase of the ranch, but for operating funds. We do these loans as a one-year revolving line of credit and usually take a deed on the entire ranch that includes their dwelling (sometimes more than one). Would these particular loans be subject to HMDA?

2. What if the loan was for 5 or 10 years to purchase a new combine where we took the deed on the entire ranch as an abundance of caution. Would this loan be HMDA reportable?

I was thinking they would not be, but at one of our recent state banker's association meeting, I posed this question and everyone in the room said they would be HMDA reportable?

3. If the loan is to purchase the entire 10,000 acre farm, secured by a deed on the farm, which includes a dwelling that they will be living in - is this HMDA reportable?

I'm very confused!

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#1993609 - 02/05/15 01:58 AM Re: HMDA& horse farm donnac
raitchjay Online
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OK
With the information you present, none of these loans sound reportable. Scenarios 1 and 2 lack a HMDA purpose (again, as stated) whereas scenario 3 is exempted from reporting as an ag. purchase.
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#1993680 - 02/05/15 02:52 PM Re: HMDA& horse farm donnac
hmdagal Offline
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One caveat, though. If you are also paying off a previous loan secured by the farm dwelling(s), the new loan will be reportable as a refinance.

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#1993726 - 02/05/15 03:40 PM Re: HMDA& horse farm donnac
Dan Persfull Offline
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Bloomington, IN
First become familiar with the definitions of a home purchase, home improvement and refinance loan. Understanding these definitions is key. They can be found in 1003.2.

1. The majority of our loans are to our AG customers. And a lot of those loans are not for the purchase of the ranch, but for operating funds. We do these loans as a one-year revolving line of credit and usually take a deed on the entire ranch that includes their dwelling (sometimes more than one). Would these particular loans be subject to HMDA? Under the current reporting structure open-end (revolving) lines of credit are optional reporting. With the proposed changes that exemption will go away most likely in January 2017. So under the current reporting structure you do not have to report these even if they meet one of the definitions of a home purchase, home improvement or refinance.

2. What if the loan was for 5 or 10 years to purchase a new combine where we took the deed on the entire ranch as an abundance of caution. Would this loan be HMDA reportable? Again look to the definitions of a home purchase, home improvement or refinance. Based on how the question is presented this loan would not be reportable.

I was thinking they would not be, but at one of our recent state banker's association meeting, I posed this question and everyone in the room said they would be HMDA reportable?

3. If the loan is to purchase the entire 10,000 acre farm, secured by a deed on the farm, which includes a dwelling that they will be living in - is this HMDA reportable? The purchase of property primarily used or to be used for agricultural purposes is exempt from reporting even if there is a dwelling located on the property. However, if/when you refinance that loan at a later date it would be reportable as a refinance.
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#1993727 - 02/05/15 03:40 PM Re: HMDA& horse farm Snowgirl
CompBanker0613 Offline
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Originally Posted By: Snowgirl
So we are primarily an Ag lending bank and have not been subject to HMDA due to not having a branch in a MSA. However, we will be branching into a MSA this year so next year we will have to report HMDA.

1. The majority of our loans are to our AG customers. And a lot of those loans are not for the purchase of the ranch, but for operating funds. We do these loans as a one-year revolving line of credit and usually take a deed on the entire ranch that includes their dwelling (sometimes more than one). Would these particular loans be subject to HMDA?

2. What if the loan was for 5 or 10 years to purchase a new combine where we took the deed on the entire ranch as an abundance of caution. Would this loan be HMDA reportable?

I was thinking they would not be, but at one of our recent state banker's association meeting, I posed this question and everyone in the room said they would be HMDA reportable?

3. If the loan is to purchase the entire 10,000 acre farm, secured by a deed on the farm, which includes a dwelling that they will be living in - is this HMDA reportable?

I'm very confused!




We are the largest Ag provider in our state. The situations you describe aren't reportable. However, you have to be careful when the Ag Renewals come around that are secured by dwellings. Ag Refi's are not exempt. Shoot me a message and I'd be happy to trade some best practices we've found, etc.
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#1993804 - 02/05/15 05:10 PM Re: HMDA& horse farm donnac
David Dickinson Offline
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Also, know that Lines of Credit (truly open-end loans - not just something you call a line) are optional reporting. Most banks don't report them. Even if you're refinancing open-end credit, it's still optional.
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