We have a secondary market mortgage department that originates and sells to only one investor. The investor treats all purchases/refinances of investment properties, such as monthly and overnight rental 1-4 family residences, as consumer purpose transactions. Since we must abide by their requirements for them to purchase the loans, we provide the early consumer disclosures and they provide the closing disclosures.

Regarding our HMDA LAR, we report those applications when our LO makes the credit decision. If this were a portfolio loan, we would consider these business purpose loans under Reg Z and would have never provided consumer disclosures. But since these were applications through our secondary market mortgage department, should we report (110) Business Purpose as "2 - Not primarily for a business purpose" since these are treated by the investor as consumer purpose loans and was treated as such by providing consumer disclosures?

Or should we apply the rules of 1026.3(a) and commentary when disclosing these transactions and report it as "1 - Primarily for a business purpose"

Thanks in advance.

The purpose under Regulation Z should be the same regardless of whether this is a portfolio loan or a secondary market loan. If the loan is subject to Reg Z, it is consumer purpose. If it is not subject to Regulation Z, it is business/commercial purpose. How you disclose the loan doesn't matter - the purpose under Regulation Z is what matters.

For HMDA, you report whether the loan is subject to Regulation Z or not. From the commentary to 1003.3(c)(10):

2. Primary purpose. An institution must determine in each case if a closed-end mortgage loan or an open-end line of credit primarily is for a business or commercial purpose. If a closed-end mortgage loan or an open-end line of credit is deemed to be primarily for a business, commercial, or organizational purpose under Regulation Z, 12 CFR 1026.3(a) and its related commentary, then the loan or line of credit also is deemed to be primarily for a business or commercial purpose under § 1003.3(c)(10).

Providing the consumer disclosures does not negate the loan's purpose.

Official Interpretation

3(a) Business, Commercial, Agricultural, or Organizational Credit

1. Primary purposes. A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt. (See comment 3(a)–2, however, with respect to credit cards.)

I got a bit more information and since these are purchases of overnight rentals and are available for the consumer to personally stay in more than 14 days in the year, the investor automatically treats them as consumer purpose. However, they assume this, they don't actually have us obtain any type of statement from the applicant that they will be using the overnight rental more than 14 days in the year.

Is this sufficient to consider it for consumer purposes under Reg Z and consider it as such for HMDA?

Thanks in advance.

I can see why the investor would do that, but it still doesn't automatically make them subject to Regulation Z. You need to know if they are actually subject to Regulation Z or not. As Dan quoted: "A creditor must determine in each case if the transaction is primarily for an exempt purpose."

I got a bit more information and since these are purchases of overnight rentals and are available for the consumer to personally stay in more than 14 days in the year, the investor automatically treats them as consumer purpose.

That 14 days does not negate the purpose of the loan. What it does is prevents you from treating the rental as a non-owner occupied rental.


4. Non-owner-occupied rental property. Credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes. This includes, for example, the acquisition of a warehouse that will be leased or a single-family house that will be rented to another person to live in. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply. For example, a beach house that the owner will occupy for a month in the coming summer and rent out the rest of the year is owner occupied and is not governed by this special rule. ( See comment 3(a)–5, however, for rules relating to owner-occupied rental property.)

I have a tag-on question on a similar subject. We regularly do loans for consumers that, according to Reg Z, have a business purpose as they are to obtain an investment property. The borrowers are not occupying the property for 14 days or more a year, so according to the commentary, it's a non-owner occupied business purpose. When we do these through our mortgage portfolio, we provide full TRID disclosures. (We do a number of these annually.) My question has to do with the fields that the data comes off the CD - such as Total Loan Costs, Origination Charges, Lender Credits etc.

HMDA says: For covered loans subject to Regulation Z, 12 CFR 1026.43(c), the following information:

i. If a disclosure is provided for the covered loan pursuant to Regulation Z, 12 CFR 1026.19(f), the amount of total loan costs, as disclosed pursuant to Regulation Z, 12 CFR 1026.38(f)(4);


Here's the problem - the loan appears to not really be subject to 1026.43 - it's business purpose. HOWEVER, HMDA also says 'If a disclosure is provided'.... Does that mean that we report the information as we would for a TRID loan, since we provided the disclosure - even if we really wouldn't have had to provide it? Or, since the app wasn't really covered under Reg Z, that we shouldn't provide this information - treating it instead as we would a loan that did not receive TRID disclosures?

If the loan is not subject to Regulation Z - regardless of whether or not you provided disclosures - you don't list anything in the applicable HMDA fields. It's just like you never gave the disclosure at all.

Paragraph 4(a)(17)(i)
1. Total loan costs—not applicable. Section 1003.4(a)(17)(i) does not require financial institutions to report the total loan costs for applications, or for transactions not subject to Regulation Z, 12 CFR 1026.43(c), and 12 CFR 1026.19(f), such as open-end lines of credit, reverse mortgages, or loans or lines of credit made primarily for business or commercial purposes. In these cases, a financial institution complies with § 1003.4(a)(17)(i) by reporting that the requirement is not applicable to the transaction.

You asked about "If a disclosure is provided..." Keep in mind that this comes from 1003.4(17)(i) which is a subpart to 1003.4(17) which says "for covered loans subject to Regulation Z." The way I see it is that 1003.4(17)(i) only applies if 1003.4(17) applies, and in your case, it does not. In other words, the lack of applicability to 1003.4(17) trumps any applicability to 1003.4(17)i.

In addition to this, 1003.4(17)(i) is referencing 19(f) of Regulation Z, which means that the loan not only has to be subject to Z regarding purpose (and as found in 1003.4(17) of Reg C), but must ALSO be subject to 19(f) of Regulation Z, which is the section that requires the Closing Disclosure. Basically, the loan must be subject to both Reg Z from a consumer purpose as well as also being subject to the Closing Disclosure requirements in order to report the information for HMDA.

I recently discovered we have the same issue. While scrubbing, many non-owner occupied investment property loans were not reported as Business Purpose. The mortgage department made me aware that our software will not allow us to report Primarily for Business/Commercial AND the Reg Z fields (Total Loan Costs, Origination Charges, etc) on the same file. These files are secondary market loans that our investors required disclosures for, but technically, are not subject to Reg Z. If we would have done these in-house, we would not have provided disclosures. So I am thinking we should report Business Purpose and not report Reg Z fields, even though we provided disclosures.

Correct. These loans were not subject to Regulation Z and whether or not you provided the integrated disclosures is irrelevant here. The purpose should be business purpose and the Reg Z fields will be NA.

Paragraph 4(a)(17)(i)
1. Total loan costs—not applicable. Section 1003.4(a)(17)(i) does not require financial institutions to report the total loan costs for applications, or for transactions not subject to Regulation Z, 12 CFR 1026.43(c), and 12 CFR 1026.19(f), such as open-end lines of credit, reverse mortgages, or loans or lines of credit made primarily for business or commercial purposes. In these cases, a financial institution complies with § 1003.4(a)(17)(i) by reporting that the requirement is not applicable to the transaction.