Hi all - I have a unique situation here.

Our customer is a builder. The loan was done in the builder/entity name as a temp 12 month loan to construct a custom home. Typical transaction...EXCEPT the land was already owned by the intended inhabitants of the home-to-be-constructed. That is the non-typical part (usually if the individual already owns the land, the loan is made as a consumer TRID construction loan to the individual).

I'm not sure whether we should report this temp construction loan for HMDA.
Going off of 1003.3(c)(3)'s exclusions, the Official Interpretations are pretty specific in defining "temporary financing".
This file doesn't technically fit the exclusion in OI #2 (builder loan to be repaid with sale of the home) because when the home is completed it wont be SOLD to the owners of the property...
It also doesn't fit the exclusion in OI #1 (temp loan designed to be replaced by separate perm financing extended to the SAME borrower at a later time) because the perm loan is going to be extended to the individual...NOT to the builder/entity who is the borrower on this temp construction loan.

Another question that flows from this is how we would report the individual's perm financing loan later...seems it would be HMDA purpose of "other" (the funds wont be to purchase the home b/c it's really already owned by them, not to refi because the loan being paid off is not in their name, and not to improve because it's paying off a construction loan).

Thoughts on this please! THANK YOU.

1st question:
Construction loans to builders are exempt. Construction loans to consumers (non-builders) are reported as a purchase (short term, not temporary). If you truly made the loan to the builder (only) then it's exempt. I'm curious: did the home owner grant a 3rd party release of the collateral? The builder doesn't own the land/home, so your borrower can't provide collateral on the home for you.

2nd question: I understand your confusion because they would already have an interest in the improvements to the land they already own. Is the builder turning around and making a loan to the owners? If so, then if/when the consumer home owner comes to you for a loan to pay off the builder, it would be a refinance.

If they don't have an ownership in the house (I'm not sure how that's possible), then it wold be a purchase.
If the home owner doesn't have any financing until the house is complete and they already own the house (because it's attached to the property they already own), that would be "other".

Seems odd.

Oh it is so odd! Thanks for taking time to go through this one.

1. The loan was only made to the builder as the sole borrower. The individual land owner signed the Mortgage (we are in Oklahoma) granting the collateral to the loan. What I get hung up on is that OI #1 excludes temp builder loans if constructing a dwelling for sale. The builder is not really SELLING them the home (since the individual will really already own the home since they currently own the land)...the individual will just be paying off the builder's debt when the construction is complete. I'm assuming the builder will file liens against the property but who knows.
""A construction-only loan or line of credit is considered temporary financing and excluded... if the loan... is extended to a person exclusively to construct a dwelling for sale.""

2. No, the builder will not be making a loan to the individual. The individual is going to get a perm financing loan, and that loan will pay off the builder's loan. So once that time gets here...we will plan to report as "other". Thanks for that guidance!

*sorry, correction to my reference...that would be to OI #2 (not OI #1) in my "hang up" above on builder loans.

I agree this is odd. It just falls through the cracks. You are not to report loans to builders. They are exempt.

Thanks David. Happy Thanksgiving week!