Hi - We have quite a few loans to builders who are purchasing a lot with a single family residence on it. The property will be torn down and a new residence will be built on the lot. Are these loans HMDA reportable??

If your loan is funding spec home construction, no.

These funds are just to purchase. They renew the loan for the construction funds.

The intent is not to use the dwelling that currently exists as a dwelling--the intent is to tear it down. There are no additional funds to purchase, refinance, or improve a dwelling. So it is not reportable.

I agree it is not reportable. For HMDA, always look at what it (the land / building) will be once your loan proceeds are applied. Since the existing building will be torn down and nothing rebuilt, then it's a bare lot loan (for HMDA).

This is true for most regulations, except Flood. Flood basically says "until it is torn down, it needs insurance".

David - the intent of the borrower is to build a new property on that land and sell that off. Still not HMDA?

That is spec home construction, which is expressly exempted, thus, my first post about spec home construction.

What is happening is they are getting a loan to purchase the house/lot. Then a new loan is done to finance the construction. The home that is constructed is then sold.
We were thinking it is HMDA because there is a dwelling on the property, even if no one is going to live in it.

But the funds are not used for construction - they are used to purchase the house/land?

The loan to purchase the house/lot isn't reportable for the reasons David and I have stated--the intent is to demolish the house, so the "dwelling" isn't being used as a dwelling.

The new loan to finance construction of the spec home isn't reportable because spec home construction is exempt as temporary financing.

Whether this is done in 1 loan (buy the home and lot, demolish the home, build a new spec home) or 2 loans (first loan buys the home/lot and demolishes home; 2nd loan constructs spec home)......neither scenario includes a HMDA reportable loan.

But the funds are not used for construction - they are used to purchase the house/land?
It's not a house. It's a building. No one dwells there and no one will after the loan is carried out.

In the definition of dwelling, Reg C states "…homes converted to daycare facilities or professional offices"… are not dwellings. [Commentary to §1003.2(f) #3]

If I buy a house and turn it into an office, it's not a house. Likewise, if I buy a house and plan to tear it down, it's not a house.

@David and @raitchjay - Does your opinion on this change for 2018 HMDA reporting standards? I do not see any exemption specifically related to spec home construction. The trigger is whether or not the loan is intended to be taken out by permanent financing. For 2018, a covered loan is reportable, and is defined as a closed-end mortgage loan or open-end line of credit that is not an excluded transaction under 1003.3(c). I don't see any exclusion for under said section for this transaction. As a matter of fact it, this scenario "acts" very similar to what is mentioned in 12 CFR 1003.3(c)(3) Official Interpretation 1(v.) -

Lender A originates a loan with a nine-month term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Under § 1003.3(c)(3), the loan is not designed to be replaced by permanent financing and therefore the temporary financing exclusion does not apply. Such a transaction is not temporary financing under § 1003.3(c)(3) merely because its term is short.

From the April 2017 proposal on HMDA technical corrections:
Comment 3(c)(3)-1 does not specifically address a construction-only loan or line of credit to a person exclusively to construct a dwelling for sale. Construction-only loans or lines of credit to construct a dwelling for sale are not currently reported under Regulation C, and the Bureau did not intend in the Final Rule to expand Regulation C's coverage to include them.

From the September 2017 HMDA final rule:
Final comment 3(c)(3)-2 provides that a construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale and cross-references comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

I forgot to add comment 1003.3(c)(3)-2:
2. Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

I don't see a 1003.3(c)(3) - 2. There is only a .3(c)(3) - 1 in the Regulation. I guess you are taking this from the full Federal Register document, but, regardless, thank you for your input. However, as has been stated in other scenarios in this forum, all of this language seems to point towards "initial" construction of a dwelling. It has been stated many times on here that a dwelling can only be initially constructed once. So, we have agreed before here, from what I remember, that a tear down and rebuild does not qualify as initial construction.

With that being said, I don't really feel these sections apply. This is not a loan for the initial construction of a spec home. It is to purchase a dwelling and then tear down and rebuild for sale. Because a dwelling is being Purchased with a closed-end loan that is not intended to be taken out by permanent financing, then I believe it is a "Purchase" under HMDA, similar to the renovate and sell comment I noted above. If we agree that a dwelling can only be initially constructed once, then a tear down and rebuild is basically a "renovation."

A "dwelling" that is being purchased to demolish isn't a "dwelling" for HMDA purposes. There is no intent to use it as a dwelling.

And the dwelling that will replace it is a spec home...and spec homes are exempted by the language that Adam has quoted above.

I suppose i see the argument you are trying to make.....you are basically considering this a flip (purchase and "improve" to sell). I am not comfortable with that argument, and would look at it the way i have stated.

Try looking at the BOL version of the regulation as 1003.3(c)(3) - 2 is in red: https://www.bankersonline.com/regulations/12-1003-003

For your reference, the September 2017 HMDA final rule can be found here: https://www.federalregister.gov/document...re-regulation-c

I agree with what raitchjay said. Unless you are re-using the foundation/a small portion of the existing dwelling (like my in-laws did to meet the ordnance of their lake association that prohibits certain new construction) - which would then be an improvement of the existing dwelling - a home to be demolished isn't a dwelling for HMDA purposes.

I view the new construction (after a different dwelling is demolished) to be an entirely new dwelling, which will now have its first (and only) initial construction.

I see the argument too, but I wouldn't call it a flip unless part of the prior home was used. Otherwise, IMHO it is an entirely new structure and thus an entirely new dwelling.

Thank you. I see the Official Interpretation #2 on the BOL Regulation link you referenced. I am wondering why that hasn't made it over to the CFPB eRegulation site, as it is not there and that is the Regulation reference I use the most for HMDA and TRID.

I may have been getting a little bit confused with TRID when talking about initial construction. Obviously, for TRID this is a "Purchase" because the real property is being purchased with the funds. However, here is a HMDA thread where some of us same group members are saying a dwelling can only be constructed once and after that anything else done to the dwelling is home improvement - https://www.bankersonline.com/forum/ubbt...rm#Post2152271. I realize that doesn't quite carry over to this particular situation, but I still think there is some value in that understanding here.

Where in any part of the Official Interpretation, the Rule, or the preamble to the Rule does it say the reporting of a dwelling is dependent on what the borrower intends to do with the dwelling? I don't see anything that discusses intent other than when the borrower purchases raw land and intends to build a dwelling on it within 2 years. There is also intent mentioned regarding having a purpose statement of what the funds will be used for. Here the purpose statement would be to purchase a dwelling, tear it down and rebuild. There is still an initial purpose of purchasing a dwelling.

The commentary talks about "dwellings" used for non-residential purposes (i think the examples they give include a building that was once a dwelling being converted to a dentist's office) not being a "dwelling" for HMDA purposes. Demolishing it isn't a residential purpose. Maybe somebody will post it...sorry i can't right now.

I posted that in my last post (12/28). Here it is again:
In the definition of dwelling, Reg C states "…homes converted to daycare facilities or professional offices"… are not dwellings. [Commentary to §1003.2(f) #3]

Here's a motto to remember for HMDA: "Always look at what the building will be once your loan process are applied."

JPC: In this scenario, they are buying a building that will be demolished. Therefore, that building is not a dwelling. In fact, it's nothing - a bare lot. Then they are building a dwelling for sale. That's a spec home and exempt from HMDA by the 9/13/17 final rule.

I don't think converting to daycare facilities applies here. Obviously, if a borrower is purchasing a daycare facility that is in the "shape" of a home (previously it was a dwelling), then it is not a dwelling for HMDA purposes. Makes common sense to me. The borrower is not purchasing a converted facility. They are actually and truly purchasing a dwelling. They just don't think the dwelling is best suited for a flip, so they tear down and rebuild a dwelling that will be better suited for resale. I wonder what the commentary would say if they contemplated that a borrower would purchase a dwelling and then convert it to daycare facilities, rather than just mentioning a dwelling that had already been converted to daycare facilities.

I appreciate all of the input from you on this, @Randy and @raitchjay and @Adam, but I still lean towards calling it a "Purchase." I don't really see much support in 2018 HMDA for "looking at the building once the loan funds are applied." I see that HMDA reporting is necessary when there is a covered loan secured by a dwelling that is located in the 50 states, DC, or Puerto Rico. A covered-loan is a closed-end mortgage or open-end credit plan that is not an excluded transaction under 12 CFR 1003.3(c). So, in this scenario, I have a closed-end loan secured by a dwelling located in the 50 states and I do not see an exclusion under 1003.3(c). So, check, check, and check. The only thing I see that hints toward an exclusion is the spec-home part you have stated previously, however, this is only applicable if one totally ignores the fact that there is already a dwelling on the property that is being purchased with said loan funds.

I've considered the various statements made and I'll probably just have to agree to disagree on this one. Thank you all again for the discussion.