Customer is obtaining a cash out on a rental they own (no refinance, owned free and clear). The purpose of the cash out is "Going to look to purchase another cabin or maybe find land a build one”.

Is this vague purpose enough to report as a home purchase?


Rule:
• Home purchase loan means a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of purchasing a dwelling.
o Multiple properties - A home purchase loan includes a closed-end mortgage loan or an open-end line of credit secured by one dwelling and used to purchase another dwelling. For example, if a person obtains a home-equity loan secured by dwelling A to purchase dwelling B, the home-equity loan is a home purchase loan.


Multiple properties with one property taken as security - If a covered loan is related to more than one property, but only one property is taken as security (or, in the case of an application, proposed to be taken as security), a FI reports the information for the property taken as or proposed to be taken as security. A FI does not report the information for the property or properties related to the loan that are not taken as or proposed to be taken as security. For example, if a covered loan is secured by property A, and the proceeds are used to purchase or rehabilitate (or to refinance home purchase or home improvement loans related to) property B, the institution reports the information for property A and does not report the information for property B.

If the loan is to purchase another cabin, it's a "Purchase" for HMDA. If the loan is to purchase a lot (only), it's "Other" for HMDA. If the loan is to purchase a land AND build a cabin, it's a "Purchase for HMDA.

So whichever way they go, it's subject to HMDA. I would collect DI and then make a decision of what you think they are going to do. Pick one and go with it. You could:
1. Adjust the purpose when you find out (but this can be a dangerous approach);
2. Call it a purchase and rely upon the "this is what we understood at the time of application." Things change. I frequently say "HMDA is an Application Regulation. You can't shoot me because the borrower did something different than what they originally intended.

I would go with #2.

This is a commercial loan; I should have said that before. So no "other" purpose, correct?

I agree with #2. Just like for home improvement, we are not obligated to follow up to make sure the funds were used for the purpose that was stated on the application.

Thank you very much!!!

If it's truly for business operations, the "Other" purpose would not apply. However, can you be more specific? If the applicant is buying a dwelling, I'm not sure this qualifies. Here's an excerpt from our HMDA training manual on this topic:

Generally, do not report business purpose home equity loans or lines. [§1003.3(c)(10)] However, business purpose home purchase, refinance and home improvement loans or lines must be reported. The regulation …does not categorically exclude all business or commercial purpose loans and lines of credit from coverage. [Commentary to §1003.3(c)(10) #1] A bank may rely on §1026.3(a) comment #8 for additional guidance on loan or line purpose. [Commentary to §1003.3(c)(10) #2] The following business purpose loan and lines are not reportable because they do not meet the home purchase, home improvement or refinancing definitions:

1. Home Equity – Business Improvement or Expansion:
A loan or line …whose funds will be used primarily to improve or expand a business, for example to renovate a family restaurant that is not located in a dwelling, or to purchase a warehouse, business equipment, or inventory… [Commentary to §1003.3(c)(10) #4(i)]

2. Home Equity – Purchase Business Inventory:
A loan or line …to a corporation whose funds will be used primarily for business purposes, such as to purchase inventory… [Commentary to §1003.3(c)(10) #4(ii)]

I would want to more about what the CABIN is. Is it a true dwelling, or is it a cabin to be used as a transitory space like a hotel, or vacation rental. In that instance, you don't have a refi, a purchase, or a home improvement.