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#2160558 - 01/16/18 06:20 PM Bridge loans & HMDA 2018
Karen B. Offline
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I have a question regarding bridge loans and the new HMDA rules. Borrower buys a home for $200,000. He gets a 1st mortgage loan from us for $180,000 and a 2nd mortgage loan for $10,000. He pays the rest in cash. The 2nd mortgage loan is secured by his current residence. After moving into the new home, his previous home (the one secured by the 2nd mortgage) sells, and the loan is paid off. Is that 2nd mortgage loan considered bridge financing such that it would not be reportable under HMDA? All of this assumes that the loans close in 2018. Reg C says:

"i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3)."

The 2nd mortgage loan is not being replaced by other financing, and that's why I'm not sure it would be exempt from HMDA. Thank you.

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#2160571 - 01/16/18 06:44 PM Re: Bridge loans & HMDA 2018 Karen B.
Dan Persfull Offline
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Is that 2nd mortgage loan considered bridge financing"

Yes and the cite you provided supports it being so.
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#2160572 - 01/16/18 06:44 PM Re: Bridge loans & HMDA 2018 Karen B.
David Dickinson Offline
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Bridge loans are NOT reportable in 2018 IF they are replaced by permanent financing. The example you provided states the bridge loan is replaced by permanent financing. That's why it is excluded.

Since your scenario says the 2nd lien of $10,000 will be paid off by the sale of the home, it is reportable.
Last edited by David Dickinson; 01/16/18 07:22 PM.
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#2160574 - 01/16/18 06:48 PM Re: Bridge loans & HMDA 2018 Karen B.
Dan Persfull Offline
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If I understand Karen's scenario the borrower obtained permanent financing for $180K, bridge loan for $10K and paid $10K in cash.

The bridge loan paid from the sale of the home. IMO that loan is exempt based on the cite Karen provided. Am I misinterpreting that?

i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3).
Last edited by Dan Persfull; 01/16/18 06:52 PM. Reason: Add citation.
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#2160580 - 01/16/18 06:56 PM Re: Bridge loans & HMDA 2018 Karen B.
Karen B. Offline
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The $10,000 loan is not being replaced by other financing. It's paid off from the sale of the borrower's previous home.

David, did you mean to say, "Bridge loans ARE NOT reportable in 2018 IF they are replaced by permanent financing"?

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#2160592 - 01/16/18 07:21 PM Re: Bridge loans & HMDA 2018 Karen B.
David Dickinson Offline
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Karen: Yes, that's what I meant to say. I'm going to edit my response so it is correct. Thanks for pointing this out.

Dan: I don't believe you're reading that correct. It's horribly worded, but the "trick" is that they say the loan is paid off with permanent financing. Bridge ONLY loans are not excluded.
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#2160593 - 01/16/18 07:25 PM Re: Bridge loans & HMDA 2018 Karen B.
David Dickinson Offline
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Here's an excerpt from our HMDA training manual on this topic (italics is verbatim, non-italics is our plain English):

Do not report loans or lines for temporary financing. [§1003.3(c)(3)] A loan or line… is considered temporary financing and excluded… if the loan or line… is designed to be replaced by permanent financing at a later time (i.e., two-phase financing). [Commentary to §1003.3(c)(3) #1] Both phases do not have be made by the same lender.

1. Bridge or Swing Loan (two-phase financing):
Lender A extends credit in the form of a bridge or swing loan to finance a borrower’s down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing… because the bridge loan will be replaced by permanent financing. [Commentary to §1003.3(c)(3) #1(i)]
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#2160601 - 01/16/18 07:41 PM Re: Bridge loans & HMDA 2018 Karen B.
Karen B. Offline
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Thank you both for responding to my question. I'm glad I wasn't the only one that found this confusing!

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#2160604 - 01/16/18 08:02 PM Re: Bridge loans & HMDA 2018 Karen B.
Dan Persfull Offline
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I sent the following question to HMDA Help. Will let you know when I get a reply.

i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A or from another lender. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3).

Borrower purchase a home for $200,000. The borrower obtains two loans. Loan #1 is a 30 year permanent financing loan for $180,000 secured by the new dwelling. Loan #2 is a $10,000 bridge loan for part of the down payment for a 1 year term secured by his existing dwelling. He pays the remaining $10,000 down payment in cash. The existing dwelling sells and the borrower pays off the $10,000 bridge loan from the proceeds.

Under this scenario is the $10,000 bridge loan exempt from reporting?

Thank you,
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#2160616 - 01/16/18 08:37 PM Re: Bridge loans & HMDA 2018 Karen B.
Karen B. Offline
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Thank you, Dan!

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#2160621 - 01/16/18 08:58 PM Re: Bridge loans & HMDA 2018 Karen B.
RR Joker Offline
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Maybe they will understand the question being asked. smirk

My understanding was that if they got temporary financing for the purchase and temporary financing for a down payment AND the temp financing for the purchase is paid by other long-term financing once current home sells AND down payment portion is paid off...you would not report either one of those...just the perm financing..

[I have never done one like that, but I understand they exist...ours would typically be 100% more or less with paydown/term out at sale of current home]
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#2160718 - 01/17/18 04:23 PM Re: Bridge loans & HMDA 2018 Karen B.
RVFlyboy Offline
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Logic would dictate that the $10,000 loan would not be reportable - the $180K loan IS the permanent financing. If a single temporary loan for $190K had been made at the time of purchase, and then refinanced into a $180K loan after the existing home was sold, only the $180K loan would be reportable. It shouldn't be any different because it was split into two loans. But logic and CFPB are not terms that should necessarily be used in the same sentence.

We'll await word from Dan for what the CFPB has to say.
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#2160723 - 01/17/18 04:58 PM Re: Bridge loans & HMDA 2018 Karen B.
Dan Persfull Offline
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Take it for what it is worth.

Hello,

Thank you for contacting the Consumer Financial Protection Bureau with your question regarding the Bureau’s regulations. Please note that the Office of Regulations provides only informal responses to questions concerning the interpretation of specific regulatory provisions of the rules under the interpretive authority of the Bureau and that our response does not constitute an official interpretation or legal advice.

You asked whether a financial institution must collect and report data required under Regulation C for which a final action was taken on or after January 1, 2018, for a loan or line of credit that is considered temporary financing.

No. Regulation C, 12 CFR § 1003.3(c)(3), effective January 1, 2018, excludes closed-end mortgage loans and open-end lines of credit that are obtained for temporary financing.

As explained by Comment 3(c)(3)-1, a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. In addition, Comment 3(c)(3)-2 explains that a construction-only loan or line of credit is considered temporary financing if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale.
For examples of loans or lines of credit that are considered temporary financing, see Comment 3(c)(3)-1.i through .iii.

For general information regarding loans that are excluded from HMDA data reporting, see section 4.1.2 of the HMDA Small Entity Compliance Guide. The Bureau also discussed excluded transactions during its August 6, 2016, HMDA webinar, which can be accessed through this link. This topic is discussed at minute 26 of the webinar, and begins on page 74 of the webinar slides. You may also wish to review the 2018 HMDA Transactional Coverage Chart to help determine whether a transaction is reportable.

The Bureau has published a number of additional resources to help you comply with the Home Mortgage Disclosure Act rule. These resources, including a compliance guide, key dates timeline, institutional coverage charts, and webinars are available on the Bureau’s website. Here, you will also find a link to a webpage dedicated to resources for HMDA filers.

If after reviewing these materials you have a question regarding how to interpret a specific section of a Bureau regulation, you may submit it to us using the form located on our website at https://reginquiries.consumerfinance.gov.

Thanks,

CFPB Office of Regulations
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#2160727 - 01/17/18 05:08 PM Re: Bridge loans & HMDA 2018 Karen B.
Karen B. Offline
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Thank you for digging into this, Dan. The response isn't as clear as I'd like it to be, but I'm definitely going to save it, and I'm going to check out the resources they've referenced. I appreciate your extra effort on my behalf!

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#2160732 - 01/17/18 05:33 PM Re: Bridge loans & HMDA 2018 Karen B.
RR Joker Offline
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This is the part that makes a difference to me on when certain events happen and why my opinion of the actual event described by the OP would not be exempt.

As explained by Comment 3(c)(3)-1, a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
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#2160734 - 01/17/18 05:38 PM Re: Bridge loans & HMDA 2018 Karen B.
Karen B. Offline
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Here's what I found in the Small Entity Guide on page 34. I'm hanging my hat on this when I say that bridge loans aren't HMDA reportable:

"Examples: Ficus Bank extends a bridge or swing loan to finance a borrower’s down payment for a home purchase. The borrower will pay off the bridge or swing loan with funds from the sale of his or her existing home and obtain permanent financing from Ficus Bank at that time. The bridge or swing loan is excluded as temporary financing."

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#2160737 - 01/17/18 05:42 PM Re: Bridge loans & HMDA 2018 Karen B.
RR Joker Offline
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That is precisely correct. However, that is not what was described in the OP.

In the original post, the $180,000 was not a piece of a bridge loan, it was already the perm financing of the new home. Therefore, the $10,000 down payment is not excluded as temporary bridge because there will be no other permanent financing after sale of prior home.

IF the $180k had been done as a temp loan along with the $10k loan, then perming out the $180 and paying off the $10k loan when prior home sells would have excluded them both as temporary loans.
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#2160740 - 01/17/18 05:46 PM Re: Bridge loans & HMDA 2018 Karen B.
Indy Banker Offline
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Seems like they avoided addressing Dan's scenario specifically, but we're to assume they are implying that the $10k loan would fall under the "temporary financing" exclusion....

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#2160744 - 01/17/18 05:54 PM Re: Bridge loans & HMDA 2018 Karen B.
RR Joker Offline
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Not in my opinion...no. It fails to meet this test:

a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.

Where the Bureau expanded this for 2018 was to include these down payment pieces as well...even if paid in full when prior home sells...but that's in conjunction with a permanent loan event. That is not what was described in the OP...the permanent loan happened initially, not later on.
Last edited by RR Joker; 01/17/18 05:56 PM.
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#2160747 - 01/17/18 06:34 PM Re: Bridge loans & HMDA 2018 Karen B.
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I was referring to the response Dan got from HMDA "Help"....

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#2160752 - 01/17/18 06:49 PM Re: Bridge loans & HMDA 2018 Karen B.
RR Joker Offline
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I don't get that assumption from that reply at all Indy Banker. Once more:

As explained by Comment 3(c)(3)-1, a loan or line of credit is considered temporary financing if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
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#2160762 - 01/17/18 06:56 PM Re: Bridge loans & HMDA 2018 Karen B.
RVFlyboy Offline
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I think the CFPB help line did not take time to understand the question asked. They responded to the question "Are we required to collect and report information on a temporary loan?" (see 2nd paragraph of Dan's response from CFPB). But that isn't the question being asked. I think we all know the answer to that question. The question being asked is if the $10,000 loan for the downpayment is a temporary loan, given that it's purpose was to bridge the sale of existing home and purchase of a new, but that it is not being paid off with new loan proceeds from a more permanent loan.
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#2160771 - 01/17/18 07:56 PM Re: Bridge loans & HMDA 2018 Karen B.
RR Joker Offline
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Agree, Jim. Everything they have said doesn't include the possibility of the permanent loan happening 'first'.

It would make sense, but that's not how they have worded any of it.
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#2160784 - 01/17/18 08:36 PM Re: Bridge loans & HMDA 2018 Karen B.
David Dickinson Offline
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I agree with the confusion. Here's what I'm understanding from the original post:

Two loans. 1st lien is a permanent loan. It is reported as a purchase. The 2nd lien is a short term, bridge loan that is paid off when the "old" dwelling is sold. Because this isn't 2 phase financing, it is reported as a purchase. This is no different than me taking out a 80% financing that is sold on the 2nd market and an in-house 10% financing that is not sold. Both are reported as purchases.

The CFPB scenario says the 2nd lien is not paid off from the sale of the home. It is replaced by a new loan. Because it is phase 1 of 2 phase financing, it is considered "temporary" and not reported.

I believe this is what Joker posted today (post #2160737).
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#2160785 - 01/17/18 08:36 PM Re: Bridge loans & HMDA 2018 Karen B.
David Dickinson Offline
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Dan: Maybe you can reply to HMDA Help with the 2 scenarios I just describe and see if you get a clearer response?
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