Terms: Interest only for 9 mths on a home improvement loan.

I am finding out right now whether they plan on obtaining perm financing (which we provided disclosures for) or if they planned on paying it off at the end of 9 months (since I know term and interest only don't equate to temp financing). Either way, can a HI loan be deemed temporary? Or would the "permanent" financing just be considered a refinance?

And would this loan be reportable? I hope I made sense.

I think your answer will depend on if the borrower will obtain permanent financing to repay the HI loan. If they are planning on paying the loan off after nine months, we would consider this HMDA reportable. If there will be a permanent loan, your interest only loan could be considered as temporary financing and therefore exempt from reporting.

OK, so then a HI loan can be temporary in nature? My LO has confirmed that they intend on a one time close, so there would be a "permanent" phase.

If permanent financing is intended to replace this loan, then I would agree that it would be considered temporary and not reportable.

OK, so then a HI loan can be temporary in nature?
Absolutely. Imagine I request home improvement financing. You offer me a 6 month, interest only loan that will then be followed by 5 year, amortized payment financing. The first loan would be temporary & not reported. The second loan would be HMDA reportable.

To carry this one step further, unlike a construction perm out being reported as a purchase, a temporary HI later permed out will be a reported as a refi, and not HI...isn't that the general consensus? [always question the illogical approach on these ! ]

Don't know if that's the general consensus, but i agree that it's reportable as a refi and not HI. The only place that explicitly says to report a refi as something other than a refi are the perm loans that replace construction only loans....and i'm not one to read into it...it doesn't say to treat temporary HI the same way, so i don't.

We've discussed this before & we don't need to beat this issue again, but I have a different opinion on how temporary/perm HI loans should be reported. It is our opinion and all of our clients (at least that I am aware of) report these as HI and not refinance. I've never seen an examiner cite a bank for calling it a HI application vs. a refinance.

I agree with David. I have always looked at the temporary loan as if it never happened. The purpose of the permanent loan doesn't change because it was preceded by a temporary loan.

This is a little late, but thank y'all for the help!

FWIW, we got the same answer as David and Randy from HMDA Help. I've come around.

Following this same line of logic - would you then report the refi of a bridge loan to purchase a new residence as a purchase instead of a refinance?

Becca,

Here's a Q & A I've had with HMDA Help:

Q:
Loan #1 was a temporary bridge loan made to purchase a dwelling until it is converted to permanent financing. This loan was not reported.

Loan #2 was the permanent financing of the temporary bridge loan made to purchase the dwelling. This loan was made to the same borrower and it satisfied and replaced Loan #1.

Would Loan #2 be reported as a purchase following similar guidelines for temporary construction loans converted to permanent financing?

A:
You are correct, loan #2 would be reported as a Purchase as temporary loans are not considered HMDA reportable.

Thanks, MBT. Now to decide about whether or not to go back and rescrub all of this year in light of this conversation.

OK along those lines, which I asked in a different thread not to long ago, but am moving it here, if any part of the temporary financing involved the purchase of the property and subsequent proceeds were used to remodel/improve the property (not initial construction) would you report the end financing as a purchase? Or would you report it as a home improvement?

FWIW we would report this as a purchase.

To answer the questions posed by RR Becca and Bec: Randy summarized this best with his post on 12/13/16.
I have always looked at the temporary loan as if it never happened. The purpose of the permanent loan doesn't change because it was preceded by a temporary loan.

That is a bit hard to follow, David. The purpose of the permanent loan [in those cases above] is to refinance a loan [that was] for a different purpose. And again, if you are a different bank doing that loan...how would you necessarily know all of that?

I'm not arguing, because I understand the logic behind what Randy and David are saying, but I am having trouble deciding to change my methodology and rescrub data to alter the purposes reported for these 'replacement' loans from refinance to purchase or improvement. Mostly because I can't find anything in the reg or the GIR that says "loans that replace temporary financing should be reported according to the original purpose of the temporary loan," and because of this answer on the HMDA FAQs:

https://www.ffiec.gov/hmda/faqreg.htm#loan






Plus there's Joker's point about not necessarily knowing the purpose of the loan you are replacing when the refi comes from another lender. Again, I'm not trying to argue - just trying to get it set in my head that I need to make this change when I haven't heard anything about it from an auditor or examiner in 13 years of HMDA-ing.

Imagine I come to your lender and ask for a HI loan. I'm going to remodel my kitchen myself over the next several months. I've made a request for a home improvement loan subject to HMDA. Your loan officer says "We'll set this up in 2 phases: 1 will be interest only and we'll only charge you interest on the principal you advance. Then when you're done we'll convert this to a permanent loan payable over 5 years."

I asked for a HI loan and had your bank extended me 1 loan for my request, it would have been reported as a HI loan.
You broke my request in to 2 phases. It's still a HI loan but there's a temporary phase between the application and reportable action date. How does that change my request from a HI loan to a Refinance?

I can't find anything in the reg or the GIR that says "loans that replace temporary financing should be reported according to the original purpose of the temporary loan,"
That's the problem. We seem to want every scenario spelled out with specific details. That's what leads to regulations being hundreds (or thousands) of pages now. We complain about the length and then complain when we think of a scenario that isn't completely explained. When I talk to the rule makers in D.C,. they often air this frustration. Apply the logic spelled out in the Construction-to-Perm

if you are a different bank doing that loan...how would you necessarily know all of that?
You may not. That would be okay.