We are making a loan to purchase a home that will be used as investment property. The loan will mature in 8 months from origination date. Am I correct in thinking this is temporary financing and not HMDA reportable?

The 8 months does not make it temporary, just short term.

What is the source of repayment?

The borrower bought the property to fix up and put back on the market. He is a realator and buys homes to fix up and sell.

Yes. The loan is interest payments only with the principal due at maturity. The borrower intends to pay the loan off with the proceeds from the sale of the home. Boy this "temporary" financing versus "short term" financing is confusing!

Another question. I assume that if the borrower had regular scheduled principal payments, this be considered "short term", and make it HMDA reportable.

Where do you catch those big fish?

Thanks for your help! You've cleared up any misunderstanding that I had on temporary vs short term financing.

Yep, I did post a silly question! Like where else can you catch fish other than in water!

If the borrower is in the business of buying, fixing up and selling homes for profit, this is his regular/ordinary income. Would the loan then be HMDA reportable?

No. The repayment will be from the sale of the home. It is temporary financing.

MacKenzie...what is the source of repayment?

Proceeds will come from a mortgage co.

Then it would be a temporary loan, as the source of repayment is from other than oridinary income.

Thanks, this is what I thought after reading some prior posts.

Let me ask this though...I am considering sending around a memo to our lenders to help them understand when a loan is going to be considered "temporary financing" based on what I have found in these threads (thanks also to Dan!). Anyway, has anyone found a tool to use or has anyone created a worksheet with some common examples that I could use?

2004 HMDA Worksheet

See if is this is along the line of what you are looking for. I got this from the HMDA Heaven page via courtesy of MagicBanker.

Once again...thank you Dan! May the fishing Gods be with you on your next outing!

And by the way, why isn't your name in green? I thought you were crowned a guru a while back....what gives?

You're welcome and thank you for the fishing Gods wish. I'm going to actually be fishing in my first "sanctioned" tournament on 10/2 and 10/3.

Green is for the moderators.

Quote:

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I'd have to opt out if they say no!

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So would I.

This will be the first fishing tournament I've fished in where you fish against actual competition, not just your buddies or some lodge function, for cash and other prizes. I'm fishing a lake I haven't fished before so I don't expect to finish in the money, but I do expect to have a good time and get some tournament experience.

Sounds like a world of fun, Dan! Best of luck for sure.

May your depth finder point true,
thru the sea of blue!

Have fun and catch lots a big ones!
Post a picture if you get a chance.

With all due respect, if I were still an examiner I would cite you for a HMDA violation, because you are reporting loans that you shouldn't be reporting. A short term loan that will be paid off upon the sale of a home is clearly temporary financing IMO and not subject to HMDA reporting.

May 29, 2002

Bulletin Number: CHIRO-07-2002

HMDA and ‘Temporary Financing’

One area of the Home Mortgage Disclosure Act (HMDA) and Regulation C that continues to confuse reporters is the exclusion for ‘temporary financing’. In this message, we will try to clarify the term ‘temporary financing’ and discuss how many banks are incorrectly applying this exclusion.

Regulation C and the HMDA: Getting It Right guide (HMDA Guide) do not define ‘temporary financing’. However, Regulation C and the HMDA Guide do provide a good foundation for understanding what ‘temporary financing’ means. Section 203.4(d)(3) of Regulation C provides some insight by stating “Temporary financing (such as bridge or construction loans).” The HMDA Guide uses similar phrases in several parts. On page 10 under “What Types of Transactions Are Excluded?” it states “Construction loans and other temporary financing (but construction-permanent loans must be reported).” On page 7 of Appendix A under “Data to be excluded”, it states “Construction or bridge loans and other temporary financing.”

Temporary is defined in the dictionary as “lasting for a limited time”. Based upon the dictionary definition and the clues in Regulation C and the HMDA Guide, ‘temporary financing’ is short term financing that is only used until other financial arrangements to pay can be made. Accordingly, looking at the nature of the credit and how it is to be repaid is the only way to determine if it meets the ‘temporary financing’ exclusion.

If we look at a construction or a bridge loan (specifically defined in HMDA as temporary), we see that the payment of the construction or bridge loan is usually from another loan (a mortgage with some scheduled duration to pay for the home) or sale of an existing home . At the time the construction or bridge loan is extended the bank knows that it will be paid from another loan or an asset sale . Therefore, the construction or bridge loan was only made until other financial arrangements to pay could be arranged and is temporary financing . Similarly, construction-permanent loans must be reported because they include an arrangement to pay.

Examiners have reported various incorrect methods used by banks to define ‘temporary financing’. Most of these methods are based on the establishment of an arbitrary loan length. For example, some banks are establishing a policy that any loan with a maturity of less than one year is a ‘temporary financing’. This type of an approach will almost always lead to disclosure errors. Banks must look at each loan to make a proper determination.

If you have any questions concerning this information, please contact us by e-mail at SCANS@FDIC.gov or call us at the Banker compliance Hotline 312-382-6926.


Bold emphasis added by me.

I would think these type loans would be looked at as bridge loans - they are temporary loans until either the home can be sold or other financing arrangements made.

As you said, as long as you are consistent and your regulator agrees you're probably OK, but if you're FDIC, you may want to rethink your procedures or talk with your regional examiner.