Forgive me if this has already been discussed...

The HMDA reg (current and new) both give examples of a 2-phase/combined construction-to-perm loan being HMDA reportable.
In the new HMDA, the example is a bit more explanatory in saying that since the loan AUTOMATICALLY converts to perm financing, and is NOT designed to be REPLACED by permanent (separate?) financing, then it doesn't meet the 'TEMPORARY' financing exclusion, and thus, the 2 phase loan would be HMDA reportable.

Okay, now apply a 2-phase HELOC to this same kind of situation.
<<<<<<We are EXEMPT from reporting the HELOC/other dwelling-revolvers until 2020.>>>>>
The 1st phase is a revolver for 5 years, and it will AUTOMATICALLY CONVERT to perm financing payout for the remaining 15 years (20 year total loan term). There will be NO new docs signed, no renewal docs, no converting docs, no modifications, etc. It will automatically happen.
Would you report this for HMDA?
Or would you say that since it's a HELOC, even if only in part, then it's excluded from the LAR?

Thank you.

From what you describe you have a HELOC with a draw period followed by a repayment period which is very common in HELOC products. If you are exempt from reporting HELOCs this loan would not be reportable.

The HELOC remains a HELOC for the entire 20 years and also remains subject to all Regulation Z requirements under Subpart B, including periodic statements, etc. It does not covert to a closed-end loan.

Confused on your statement that it remains a HELOC...how does it remain a HELOC if the revolving phase ends after year 5, and customer can no longer make advances, and has to pay back the loan the last 15 years (which I would consider closed-end)?

Thank you both for your insight!

5. Payment terms—applicability of closed-end provisions and substantive rules. All payment terms that are provided for in the initial agreement are subject to the requirements of subpart B and not subpart C of the regulation. Payment terms that are subsequently added to the agreement may be subject to subpart B or to subpart C, depending on the circumstances. ...

Official Interpretation

Section 1026.40—Requirements for Home-Equity Plans

5. Payment terms—applicability of closed-end provisions and substantive rules. All payment terms that are provided for in the initial agreement are subject to the requirements of subpart B and not subpart C of the regulation. Payment terms that are subsequently added to the agreement may be subject to subpart B or to subpart C, depending on the circumstances. The following examples apply these general rules to different situations:

i. If the initial agreement provides for a repayment phase or for other payment terms such as options permitting conversion of part or all of the balance to a fixed rate during the draw period, these terms must be disclosed pursuant to §§1026.6 and 1026.40, and not under subpart C. Furthermore, the creditor must continue to provide periodic statements under §1026.7 and comply with other provisions of subpart B (such as the substantive requirements of §1026.40(f)) throughout the plan, including the repayment phase.

So the reason that construction-to-perm are reported and not HELOC-to-perm are that C2P are closed-end loans and H2P are open-end loans...and Reg Z calls them open-end loans for their entire term even if they have language for repayment phase?

For HMDA: (p) Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.

A permanent loan refinances a construction loan with a new obligation. When a HELOC enters into its repayment phase, there is no refinance as it is all in the original obligation.

But if you have construction to perm then you have nothing new that was not mentioned in the original obligation...so I'm not seeing the difference there. Construction to perm...one closing...one note...one mortgage.

Banker: Randy is describing 2 phase financing. Loan #1= a multiple advance, construction loan followed by Loan #2 = permanent financing of the construction. Loan 2 refinances the first loan (it's literally 2 different loans), but it's reported as a purchase for HMDA. He's contrasting this to a HELOC that has two phases (drawn vs. repayment) but not 2 loans.

If you do construction and perm in one note, then it's not the same as he is describing.

Thank you - so what I'm trying to understand is: what is the difference in a 2phase ONE loan construction-to-perm, versus a 2phase ONE loan HELOC revolver-to-perm repayment?

The CFPB's example in 1003.3(c)(3), OI #1(iv) says you report the construction loan because it's automatically converting to perm financing/repayment and it not going to be replaced by (separate) perm financing.

So what is the difference in that and a HELOC that automatically converts to perm financing (repayment) and wont be replaced by (separate) perm financing?

Why would we say we do report the 2phase/one close construction loan, but not the 2phase/one close HELOC loan?

What I consider a 2 phase loan is there are 2 separate loans involved. The construction loan (phase 1) and then the permanent loan (phase 2). In this scenario only phase 2 is reportable.

A single close (1 phase) construction/permanent loan where there is a 12 month construction period followed by the permanent period is a single loan and is reportable.

If you are required to report HELOCs and if you use a HELOC as a construction/permanent loan that HELOC would be reportable. BUT it still remains an open-end credit product when it enters the repayment phase and is governed by Subpart B of Reg. Z.

BTW, if you are using a HELOC as a construction loan hopefully you are not controlling how the advances are drawn and used. Your ability to restrict advances on a HELOC is very limited under 1026.40.

HELOCs are open-end credit governed by 1026.40. Construction loans (non-revolving) are closed-end. Construction-perm loans are closed-end.

So a non-revolving line of credit would be considered a closed end loan? Multiple advances are made up to the loan amount and the money cannot be re-borrowed.

I would say yes, and it would be a reportable loan.