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#2173882 - 04/17/18 07:19 PM Balloon Payment Code for Construction 1x Closes
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San Antonio, TX
In our LOS system where we input our Construction 1x Closes, it is producing a Balloon Payment Code of "1" (Balloon Payment) for such loans on the HMDA LAR. Being that we only report these when they go into perm (also P & I payments initiate), I would imagine they would be reported as "2" (No Balloon Payment) on the LAR as they are fixed at that point with no balloon payment at the end (not a 30/15). I can see where the system may mistakenly code this due to the nature of a 1x Close Construction loan and system limitations, but I see it as exactly that, a mistake. Because HMDA reporting becomes effective as the permanent phase begins (Action Taken Date), I would imagine we would report what is at that time, not what was even at the beginning of the draw period (construction phase). Further weight is given when one considers we never report anything that doesn't go beyond the construction process. Others within the bank think we may need to consider what is as of origination, but that thinking is not consistently carried through with other items reported. What are your thoughts/insight? Thanks!

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#2173909 - 04/17/18 09:03 PM Re: Balloon Payment Code for Construction 1x Closes Help! Compliance
David Dickinson Offline
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David Dickinson
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Posts: 18,762
Central City, NE
Quote:
Because HMDA reporting becomes effective as the permanent phase begins (Action Taken Date)

This may be your procedure, but it isn't a requirement. HMDA allows you to report either the closing OR the date the loan converts to permanent financing:

For a construction/permanent covered loan, the institution reports either the closing or account opening date, or the date the covered loan converts to the permanent financing. Although an institution need not choose the same approach for its entire HMDA submission, it should be generally consistent (such as by routinely using one approach within a particular division of the institution or for a category of covered loans). [Commentary to §1003.4(a)(8)(ii) #5]

I've always recommended you go with the original closing date. Otherwise, you have to prove the conversion date, which is not readily available when looking at the note. Therefore, auditors have to dig a little deeper to find this answer.

Either way, I don't think you have a balloon. I would contact your LOS vendor and ask them why there system is doing this.
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#2173931 - 04/17/18 09:58 PM Re: Balloon Payment Code for Construction 1x Closes David Dickinson
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San Antonio, TX
When we report the loan as it goes to perm, the loan amount is reported as the principal balance at the time it went to perm. That means if it never disbursed fully or unscheduled principal payments were made during the construction phase, the loan amount reported would not match up with the original Note Amount. If we report as of the original closing as you suggested, would we report the full Note Amount regardless if it is never fully drawn to the point or paid down before permanent financing?

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#2174154 - 04/18/18 08:28 PM Re: Balloon Payment Code for Construction 1x Closes Help! Compliance
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Yes, you would report the full loan amount. This is another reason to go with the initial loan date. You don't muddy the water with prepayments or not fully funding.

If you choose the conversion date, you also have this "problem" to deal with:
Notwithstanding this flexibility regarding the use of the closing or account opening date in connection with reporting the date action was taken, the institution must report the origination as occurring in the year in which the origination goes to closing or the account is opened. [Commentary to §1003.4(a)(8)(ii) #5]

You can't cross calendar years. You must report the original loan date, not the conversion date, it is crosses a year.

To your original question: I don't think a construction to perm is a balloon for HMDA.
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#2174269 - 04/19/18 03:57 PM Re: Balloon Payment Code for Construction 1x Closes David Dickinson
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Joined: Oct 2012
Posts: 105
San Antonio, TX
Interesting points made. We are actually rethinking our practice and may adopt your recommendation. But just in case our current practice were to remain (only reporting as of when it goes to perm/P & I), when it comes to the "Interest Only Payments" code, would we continue to only use Code 2 (No interest-only payments) since we would report after the interest-only period has expired (construction period ends)...or would we have to report Code 1 (Interest-only payments) regardless of which practice we opt to use, because it is a feature of the overall loan? Thank you so much for your insight into this topic...

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#2174305 - 04/19/18 05:47 PM Re: Balloon Payment Code for Construction 1x Closes Help! Compliance
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
My opinion without researching: You report the loan features the same no matter if you call the action date the original funding date or the date it modifies to payout. IOW, I don't believe you are ONLY reporting the permanent phase of the loan. There's only 1 loan and it's the same for all data points. You are choosing to identify the action taken date at a later time (which is allowed), but that doesn't change the interest only feature that was in this same loan.

If you did 2 loans (one for construction and another for permanent), then I would say you only report the terms/data that are specific to the 2nd loan, but that's not your situation.
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