Hoping to get some opinions on whether a loan is reportable. We think it is, our auditors think it isn't.
We have a closed loan in 2017 that is a Commercial Construction to Permanent Loan to 3 entities. The loan is secured by 4 properties.

The first property contains 4 retail buildings (3 of which are or will be razed). Half of the proceeds of the loan will be used to construct a grocery store at this location. The proceeds will also be used for significant improvements to this property.

The second property has two single family residential investment properties. They will remain on the property and continue to be rented.

The third property has 3 retail buildings and 1 office building. There will be minor improvements to this property.

The fourth property has 1 retail building. There will be minor improvements to this property.

The remaining funds (a little less than half the loan amount requested) will be used to refinance the properties. The loan at the other institution is secured by all the properties listed above.

Based on the definition of “Refinance” that is noted in the HMDA guidelines: “A refinancing is any dwelling secured loan that replaces, and satisfies another dwelling secured loan to the same borrower. The purpose of the loan being refinanced is not relevant to determining whether the new loan is a refinancing for HMDA purposes. Nor is the borrower’s intended use of any additional cash borrowed relevant to determining whether the loan is a refinancing, though the borrower’s intended use of the funds could make the transaction a home improvement loan or a home purchase loan” we believe the loan is HMDA reportable as a refinance.

Our auditor is directing us to the published Q & A’s from the June 16, 2011 FDIC HMDA Validation Teleconference materials. There is a question that is similar although not as complicated as our transaction where they say the loan wouldn’t be reportable:

Question – We have a commercial loan with 2 properties, one a commercial office building, and a 1-4 family home. They are both being refinanced at the same time into one loan. Would this be reportable or not? The commercial building has the most value, and the 1-4 was taken as an abundance of caution.

Answer: No, the majority of loan proceeds now finance a commercial office building, therefore the new obligation is not primarily secured by a lien on a dwelling, and the loan is not a refinance, home improvement or home purchase loan for purposes of HMDA reporting.

In our example the commercial portion does have the most value however the residential property was not taken as an abundance of caution (at least the approval does not note that it was).

Do we follow the Q & A or the refinance definition in the guidelines?

Based on what you provided, your scenario appears to meet the definition of a refinance and should be reported. Unless they can point to some rule, commentary or other guidance I am unaware of, that Q&A seems to be incorrect. This wouldn't be the first time a regulator webinar provided incorrect information. I would always go with the rule over a Q&A from an agency who does not have the authority to interpret the law and did not write the rule.

I agree with Adam. I've never heard of a majority rule for HMDA in the manner they have described before 2018.

It sounds like the FDIC webinar is trying to apply the mixed use test on completely separate properties. I think that would be hard to defend, so I would definitely report.

We would report as well.

I would ask the auditors to show me in the regulation or commentary/GIR where they are basing there decision on.

I agree. I believe prior to 2006 it was the greatest amount ruled

Thank you everyone