We had done a temporary construction loan that was used to build a shed. We have now refinanced this temporary loan into a permanent loan. Prior to new HMDA, we would have gone back to the purpose of temporary financing (home improvement) and reported it as home improvement on our LAR. Does the same hold true for New Hmda?

Under 2018 reporting a refinancing takes precedence over home improvement.

Thank you Dan. It is hard to reprogram my brain for some of this new stuff!

In the case of a refinance into a permanent loan of a construction loan that was used to build a new home, we would still report as a purchase correct? Due to purchase taking precedence over refinance?

Correct. Converting a construction loan to permanent financing is still considered a purchase transaction and a purchase transaction takes precedence over all others.

This is an extremely good question actually. If you stick with the original request from the temporary phase, refinance would not enter the picture. It would have been an equity loan [in this example]. Seems to me, HI would be the appropriate coding.

It meets the definition of a refinance--how can you ignore that? The perm loan is satisfying and replacing the temporary loan, and refi now trumps HI. I don't see any way of getting around that fact.

Of course, i've always been in the camp that a temporary HI loan followed by a term loan is a reportable refinance and not an HI loan at that point--unless new funds are then being used (again) for HI.

RRJ, under the old rules I would agree but under the new rules you are refinancing the temporary loan and under the new rule a refinancing takes precedence over home improvement. This of course is assuming the new loan meets the definition of a refinancing.

No, I'm just glad the subject is coming up.

The prior theory was that the set-up of the loan was because that's they way the bank had or wished to do it. But the request, itself, was for purchase or improvement-type purposes. First term out was reported based on what the 'waterfall' would be on the actual request. Same as it remains for Construction payout being a Purchase, even though it may also have a 'refinance' element if same borrower is involved.

I could make a case that 2018 hasn't changed that initial request waterfall. I've got some thinking to do!

Eessshhh.

I think the re-arrangement of the waterfall with refi now on top of HI kind of justifies the old way of thinking that i recited above--that is, that it was never the intent that temporary loans later permed out (with the one exception of construction loans permed out, since that was stated explicitly) would revert back to the temporary loan purpose.

No, it really doesn't. I have a lot of temp purchase/rehabs that I report as purchase at first term out.

Well, you reporting them that way doesn't mean that's correct.

I've always been in the camp as raitchjay (reporting the permanent loan as a refi under the old rules). I once had a client that tried the other camp (reporting the end loan as HI) and it was a logistical nightmare for them to keep track of which permanent loans were paying off a HI loan. I just felt that reporting the permanent loan as a refi was the cleanest way - not to mention that the permanent loan was satisfying and replacing an existing loan to the same borrower.

Of course, all of that is a non issue now, but I too am glad to see this discussion.

Easy now...

The only guidance there has ever been saying that a loan should be reported based on the purpose of a PREVIOUS loan is the construction perm out scenario.

Russ, you and I both know there is no way they are ever going to cover every scenario, but it makes absolute sense [to me], unless you are paying off another lender and have no clue what that purpose may have been, that first time reporting should follow the same logic.

Now I realize we aren't going to agree...it's either going to be flat-out wrong or 'pick one and be consistent'. I'm not convinced the latter doesn't still apply here.

Well, it makes no sense to me that they would put out the construction perm out scenario (which can't be more than 30 words) and then not bother to give the other 20-30 words they might need to say "use this in other temporary scenarios too".

I'm still in the camp that you report the purpose of the original request. If I ask for a home improvement loan and you break into 2 phases, the first phase isn't reported (temporary) and the second phase is reported as a HI loan. Why? Because that's what I requested. you simply took my request for a HI loan and fragmented it into 2 loans. That doesn't change the purpose of my request. I don't see the new rules changing this at all.

We've debated this here many times and I believe you can go with either method. Just be consistent.

I'm in the middle of data integrity and we agreed to agree on the way I do these. YAY

Stumbled across this one, I was in the camp of reporting these HI loans as refi until David convinced me that doing 2 loans because it was convenient for the Bank did not alter the original intention of the loan. So, while I am reading down, I kept thinking where is David, we need him to weigh in. And he did not disappoint!

And just for kicks, we sent this question to HMDA Help in 2015 and they said to report the perm loan as HI.

HMDA doesn't talk about the intention of the applicant though.......it talks about reportable applications/loans and gives the rules for how to report those.

I may be late, but I try not to disappoint!

And just for kicks, we sent this question to HMDA Help in 2015 and they said to report the perm loan as HI.

And in 2015 you did not report bridge loans regardless how they were to be repaid. That has changed for 2018 and IMO so has the "2 phase" financing reporting except for construction loans for the initial construction of the dwelling.

I was in the camp to report HI on the permanent financing because home improvement took precedence over a refinancing and that's how we reported our 2017 data. That is no longer the case. A refinancing now takes precedence over home improvement and that's how we will report our 2018 data for the permanent phase of these 2 phase transactions.

But at the time of the application, 'refinance' was not even on the table. I don't see the difference in past to now, unless it was a double loan request for a refinance plus a loan to improve maybe...then it would be a refinance, but based off the first request, not the final phase.

And I also have never not reported 'bridge loans' that were to be paid off instead of paid from other loan term financing. the FRB drilled this in my head many moons ago and never wavered on it.

I see your point Dan, but I don't think they are refinancing anything. They applied for a HI loan. IF your bank breaks that into 2 loans, it's still a HI loan request, you just don't report the first phase because it's temporary. IF you don't break it into two loans, then it would definitely be a HI loan. This is much like a construction to perm that HMDA specifically spells out to report as a purchase. Why would HI (or any other 2 phase financing) be any different?

With all of that said, I think you can argue either position. Pick one and go with it.