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#2060962 - 01/28/16 04:22 PM HMDA & reporting modifications
Red Raiders Offline
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We had a loan to an LLC to purchase a rental house in 2010. We reported this as a purchase in 2010 (was a 5 yr balloon). In 2015 at maturity, the borrower's financials weren't ready so we did a six month renewal to give them time (was a new note). 4 months later, the loan was modified with a change in terms agreement extending the maturity date 5 years (another 5 year balloon).

Is this modification HMDA reportable?
Last edited by raiders; 01/28/16 05:44 PM. Reason: typo
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#2060971 - 01/28/16 04:39 PM Re: HMDA & reporting modifications Red Raiders
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No. Modifications are not reportable.

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#2060984 - 01/28/16 05:04 PM Re: HMDA & reporting modifications Red Raiders
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I just wasn't 100% sure since if we would have done the 5 year balloon renewal (as a new note and absent the temp note) then we would have reported that as a refinance.
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#2060990 - 01/28/16 05:11 PM Re: HMDA & reporting modifications Red Raiders
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We modify 90% percent of our construction loans to perms. We DO report the modifications as purchase transactions.
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#2060991 - 01/28/16 05:12 PM Re: HMDA & reporting modifications Red Raiders
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Construction modifications I was clear on. It was this odd refinance modification that I wasn't sure about...
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#2060997 - 01/28/16 05:36 PM Re: HMDA & reporting modifications Red Raiders
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If the "renewal/modification" is a brand new note, we report for HMDA. If it's a simple change in terms or maturity extension, we do not report.

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#2060999 - 01/28/16 05:46 PM Re: HMDA & reporting modifications Red Raiders
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I had received guidance in the past from hmdahelp that modifications for construction and home improvement loans taking them from temp to permanent financing were reportable. But nothing about refinances so I just wanted to confirm that these were not to be reported.

Thanks, all!
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#2061000 - 01/28/16 05:51 PM Re: HMDA & reporting modifications Red Raiders
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I think the biggest thing is whether or not it's actually a modification of the original loan, or a brand new obligation. There's been a lot of discussion on here that I've seen on this subject when we were trying to decide how to report what our lenders and operations department call "modifications."

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#2061004 - 01/28/16 06:04 PM Re: HMDA & reporting modifications Red Raiders
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The terms define the times that these are HMDA reportable.
Modifications actually modify an existing agreement.

In order to be a refinance for HMDA the loan must '...satisfy and replace the existing....' (GIR)

Note: Normally you don't modify construction loans. You close them and then refinance the debt with a new note and mortgage on the dwelling. Even tho you are refinancing an existing debt, construction perm loans are reported as PURCHASES on your HMDA LAR.

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#2061007 - 01/28/16 06:12 PM Re: HMDA & reporting modifications Truffle Royale
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Quote:
"Note: Normally you don't modify construction loans. You close them and then refinance the debt with a new note and mortgage on the dwelling. Even tho you are refinancing an existing debt, construction perm loans are reported as PURCHASES on your HMDA LAR."


I have only worked for three different banks. This current bank is my first exposure to modifying a construction loan to the perm. I was in disbelief. But that's how they do it here.
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#2061041 - 01/28/16 07:37 PM Re: HMDA & reporting modifications Red Raiders
David Dickinson Offline
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If a construction loan is modified to perm financing, it is reported as a purchase.
If a temporary construction loan is modified (not refinanced) into permanent financing the loan is no longer a temporary loan and has not been previously reported, it should be reported as a home purchase loan if it meets Regulation C's definition of home purchase. [HMDA FAQ – PFRB 2nd Quarter 2011]

All other loans that re modified (home improvement) are not reported.

Swiggles: one more word of caution on what you have described. Has is the APR expressed? If loan officers are only disclosing the construction phase (APR and other disclosures), then I think there's a big problem. It sounds like they know they are going to modify the loan into a long term phase.
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#2061091 - 01/28/16 09:10 PM Re: HMDA & reporting modifications Red Raiders
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David - hmdahelp had told me recently that home improvement loans that were modified from temporary to permanent via a modification agreement were also reportable (just like construction loans).

You disagree and say only the construction ones would be reported, correct?
Last edited by raiders; 01/28/16 10:00 PM. Reason: add question
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#2061092 - 01/28/16 09:10 PM Re: HMDA & reporting modifications David Dickinson
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Another can of worms I have not yet tackled, David. Is there anything in the file that suggests a modification is in the future?....no. Not a hint. But the fact that we DO modify most of 'em into perms tells a different story. We do NOT give any perm disclosures at the construction phase either......even though we have no take-out commitment in file from anywhere else. eek We do all the disclosures at Mod time.....LE & CD (formerly, we did GFE/HUD/TIL.
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#2061114 - 01/28/16 10:44 PM Re: HMDA & reporting modifications Red Raiders
David Dickinson Offline
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Quote:
David - hmdahelp had told me recently that home improvement loans that were modified from temporary to permanent via a modification agreement were also reportable (just like construction loans).

You disagree and say only the construction ones would be reported, correct?

I absolutely disagree. HMDA FAQs say to not report modification, extensions, etc. There's a Phil FRB FAQ (quoted above) that specifically addressed construction loans modified to perm financing (like swiggles described). This is contradictory to all other guidance, but they specifically mentioned construction to perm loans. They did not say home improvement to perm or any other scenarios. If they wanted it to be more, I think they would have said all modifications of temporary to permanent loans.

Here's an email I wrote to HMDA Help in June 2011 following the "new" FAQ:

In the Second Quarter 2011 edition of the FRB's Consumer Compliance Outlook newsletter, there were new HMDA Q&As provided. I'm struggling with #8:
If the bank modifies, but does not refinance, a temporary construction loan into permanent financing, does this loan become a HMDA-reportable loan?
Yes. Comment 203.2(h)-5 explains that when permanent financing replaces a construction-only loan, the loan should be reported for HMDA. In addition, construction-permanent loans must also be reported for HMDA. In essence, the bank has replaced its temporary
construction loan with permanent financing through this loan modification. Because it is no longer a temporary loan and has not been previously reported, it should be reported as a home purchase loan if it meets Regulation C's definition of home purchase.

This goes against everything we ever understood in HMDA. That is also not what we believe Comment #5 to §203.2(h) is stating. This commentary is referring to the permanent financing loan that follows a construction loan. This new loan isn’t a refinancing, it’s the purchase. If you modify a loan (don’t replace it with a new loan), you don’t have a HMDA reportable transaction. This is even supported in the definition of “refinancing” [§203.2(k)] which states a new obligation must be satisfied and replaced to be reported. In other words, extensions & renewals are not reported for HMDA purposes.

Please clarify and provide any direction you can to help us understand.
Thank you,
David Dickinson

They replied:

Given the example in the newsletter, yes, the loan would be HMDA-reportable
as the construction loan was replaced with permanent financing.

- HMDAHELP staff
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#2061115 - 01/28/16 10:46 PM Re: HMDA & reporting modifications Red Raiders
David Dickinson Offline
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Quote:
Another can of worms I have not yet tackled, David. Is there anything in the file that suggests a modification is in the future?....no. Not a hint. But the fact that we DO modify most of 'em into perms tells a different story. We do NOT give any perm disclosures at the construction phase either......even though we have no take-out commitment in file from anywhere else. eek We do all the disclosures at Mod time.....LE & CD (formerly, we did GFE/HUD/TIL.

I think you've got a MAJOR can of worms to tackle. You may not have anything in the file, but your procedures say otherwise. Not giving perm disclosures and not giving construction/perm (all in one) disclosures is a major issue. Sounds like they want they cake and eat it too. Good luck with this.
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#2061187 - 01/29/16 02:29 PM Re: HMDA & reporting modifications David Dickinson
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Quote:
I think you've got a MAJOR can of worms to tackle. You may not have anything in the file, but your procedures say otherwise. Not giving perm disclosures and not giving construction/perm (all in one) disclosures is a major issue. Sounds like they want they cake and eat it too. Good luck with this.


Preaching to the choir, you are.

But back to the perm of home improvement loans. We had a similar scenario at my former bank. Practically ALL home improvement loans that were set up for the term of the improvement project, were then modified to perms. So, if we did not report the modifications, we had literally hundreds of home improvement loans that never found their way to our lar....because the temp was not reportable, nor was the mod. This skewed our numbers big time. We began reporting these loans and never had criticism about it through several exams. Maybe we were lucky.
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#2061307 - 01/29/16 07:21 PM Re: HMDA & reporting modifications Red Raiders
David Dickinson Offline
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I understand what you are saying about the HI (temp) being converted to perm. But HMDA says not to report them. Until May 2011, HMDA said not to report construction loans that were converted to perm by a modification. The FRB issued a new FAQ that changed this - but only this.

Again, this is not normal (modifying to perm financing). If banks do this, there are many other issues to be concerned about (as I've already pointed out and to which you are a "choir" member). I don't believe the FRB or CFPB has ever worried about this for HMDA reporting because it shouldn't be happening & when it does, it should be the exception to the rule. What you say is that this is typical at your bank. Hence, the can of worms you are facing.
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#2061346 - 01/29/16 08:49 PM Re: HMDA & reporting modifications Red Raiders
swiggles Offline
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Thanks, David....as always.
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#2066077 - 02/25/16 06:18 PM Re: HMDA & reporting modifications Red Raiders
Compliance504 Offline
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We have a loan that was processed as a modification/assumption and because the term modification was used it slipped through the cracks for HMDA reporting as a purchase assumption loan....I just want to make sure that I understand reporting assumptions correctly.....We don't do assumptions often...I just happened upon it while reviewing something else.....

If we have true "assumption of loan" documents (not "modification of loan" documents) where the loan is being assumed by new a new borrower and a transfer of ownership in the collateral to the new borrower is being transacted as a part of closing.......this would be reportable as a HMDA purchase transaction even though a loan was not satisfied and replaced......is this correct?

This is a loan secured by beach house.....

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#2066245 - 02/26/16 03:32 PM Re: HMDA & reporting modifications Red Raiders
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9. Assumptions. An assumption occurs when an institution enters into a written agreement accepting a new borrower as the obligor on an existing obligation. An institution reports an assumption (or an application for an assumption) as a home purchase loan in the amount of the outstanding principal. If a transaction does not involve a written agreement between a new borrower and the institution, it is not an assumption for HMDA purposes and is not reported.
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#2179063 - 05/22/18 12:57 PM Re: HMDA & reporting modifications Red Raiders
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Is the guidance regarding the modifications of construction loans into permanent loans mentioned above still applicable for the 2018 HMDA reporting?

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#2215171 - 06/06/19 05:35 PM Re: HMDA & reporting modifications Red Raiders
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I had the same question as the last one here. Since the FRB was the one who opined back in 2011 that modifying a construction loan into permanent financing was reportable and now HMDA is the CFPB's baby does this still hold true? I couldn't find it in current Reg C.

Thanks!
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#2215176 - 06/06/19 06:03 PM Re: HMDA & reporting modifications Red Raiders
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The construction loan would be reportable.

iv. Lender A extends credit to finance construction of a dwelling. The loan automatically will convert to permanent financing extended to the same borrower with Lender A once the construction phase is complete. Under § 1003.3(c)(3), the loan is not designed to be replaced by separate permanent financing extended to the same borrower, and therefore the temporary financing exclusion does not apply. See also comment 2(j)-3.
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#2215181 - 06/06/19 07:11 PM Re: HMDA & reporting modifications Red Raiders
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My situation is a little different than that. This loan was to a builder who intended on selling the home upon completion. The loan is nearing maturity and now he has decided that he is going to keep it and rent it. At origination we thought the loan would be paid off from the sale and had no intention of terming it out either via new note or modification. However, based on the builder changing course we are now doing a modification to term it out.
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#2215196 - 06/06/19 09:51 PM Re: HMDA & reporting modifications Red Raiders
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If you are not refinancing it and only modifying it, it is not reportable for HMDA. These should be an exception, not the rule.
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