Someone please shoot me.....

I am finishing up my HMDA scrub, and came across a loan to construct an assisted living facility. The loan structure is interest only for 36-months with a 2-year extension option. If the borrower uses the extension option, payments convert to P&I. The original loan was done in 2014 by another lender. We agreed to purchase a participation of roughly half the loan amount in 2015, BUT....the "lead" bank did not want to execute a participation agreement. They decided to bifurcate the mortgage. So my file has 2 notes (1 listing us as lender then assigned to "lead bank, and 1 listing "lead" bank as lender). Both notes reference the original loan agreement which contains the security information and terms. "Lead" bank is handling all servicing (referenced in our note as the administrative agent). Deed in file is dated 2014 (original filing).

So, here's what I'm thinking....

HMDA reportable as a purchase (using construction-perm logic due to length of note and the P&I conversion language in the extension option part of the loan agreement) PROVIDED that a bifurcated note is reportable.

Does this sound right?

Where would you find the information in regards to the bifurcated note? In regards to HMDA reporting? I don't recall ever seeing anything in regards to it.

There is nothing in the GIR that I could find about bifurcated notes. Normally we would just execute a participation agreement and move on. Participations are not reportable.

Bifurcations create 2 separate promissory notes. In this case, the borrower executed a promise to pay to us and another promise to pay to the other bank and are using one mortgage/deed for the sum of the 2 notes instead of filing different liens and positioning one behind the other.

Creates all sorts of questions and a total mess for me.....

Which party did the underwriting?

Well, the loan officer is trying to say that the "lead" bank did it, BUT the loan officer also wrote up a 15 page credit memo about the borrower and presented it to the board. My gut is that the majority of that write up is cut/paste from the "lead" bank's documents. There are several times in the write up where the write-up references the "lead" bank's analysis, BUT then our credit analyst is noted as completing risk scoring, which indicates that he at minimum reviewed/analyzed their analysis. Additionally, the loan officer and the credit analyst made a site visit to the collateral property prior to obtaining board approval for the deal.

I thought the lead bank for the participant loans does report if meets HMDA purposes...

In a participation, yes. In a participation though, generally we just sign a participation agreement with the lead bank, not a new note with the actual borrower. Our intent was for this to be a participation, but the other bank stipulated that the transaction be done via a bifurcation.

What we have is an actual promissory note for one half of the mortgage amount signed by the borrower listing us as the lender, and the other bank as our administrative agent to take payments. There is a second note to the other bank signed by the borrower listing them as lender for the other half of the mortgage amount. Basically there are 2 promises to pay for 3.5 million each secured by one mortgage deed for 7 million. Our note states that we have rights to the mortgage deed even though our name is not on it (ie we have a security interest, but possibly not a perfected lien).

My confusion stems from is a bifurcation the same as a participation for HMDA purposes? Or is it really an origination since we have a contractual promise to pay from the borrower directly to us?