We have a commercial customer how is taking equity out of two homes owned free and clear and using that money to construct a duplex. I believe the loan would be considered the permanent financing as it is most likely going to be a 25 year term. The dwelling being constructed will not be securing the loan, nor will the bank be monitoring the construction phases. Do you believe this loan to be reportable? If so, what would the purpose be?

Yes, it's reportable. See the definition of a home purchase in Reg. C 1003.2.

Home purchase loan means a loan secured by and made for the purpose of purchasing a dwelling.

I don't think we can answer until you can state definitively whether the loan DOES include permanent financing or not. If it's a one-time close, two-phase construction AND perm financing, then it would be reportable as a purchase (since even though it isn't secured by the dwelling being built, it IS secured by two dwellings). But if it's a construction-only loan, it would be exempt from reporting (if you came along later and did the permanent financing at a later date, then THAT loan would be reportable as a purchase).

ETA: Didn't see Dan's post til i hit enter. I agree, assuming that your loan will include perm financing.