Scenario:

Rental House owner pledges property (owned free & clear) for new loan. Intends to Lease/Purchase the home to his brother. Brother is not on loan, but I assume he will be making the payments. I first thought it couldn't be a purchase, but the more i think, the more I question.... Thoughts?

What is the money being used for? If it is owned free and clear and the ownership isn't changing, it couldn't be a purchase.

The officer tells me the brother was "unable to purchase on his own", so the owner had the house financed with the intention of the brother making the payments to the bank, rather than doing a personal loan between themselves. Essentially, the loan was made for the brother to purchase the home. I've never seen anything quite like this....

If the original owner is the sole borrower on the new transaction it isn't a purchase. If he owned it free and clear then it's not a refinance. It's not a home improvement loan. Since this doesn't appear to be a consumer transaction the loan would not be HMDA reportable.

That's my 2 cents worth.

Yes, that's exactly how i was thinking about it. Until I thought about it too hard...

That's very easy to do, graygirl!

Speaking of thinking too hard... I'm still struggling with this as I'm not sure we got a clear understanding of what the funds are being used for.

Let me attempt to explain.

First, based on what you provided, the occupancy type would be an investment property.

From the commentary for occupancy types:
"For example, if a person purchases a property, does not occupy the property, and generates income by renting the property, the property is an investment property for purposes of § 1003.4(a)(6). Similarly, if a person purchases a property, does not occupy the property, and does not generate income by renting the property, but intends to generate income by selling the property, the property is an investment property for purposes of § 1003.4(a)(6). Section 1003.4(a)(6) requires a financial institution to identify a property as an investment property if the borrower or applicant does not or will not occupy the property, even if the borrower or applicant does not consider the property as owned for investment purposes."

Since this is a loan to an individual, our question becomes whether this loan is for consumer or business purposes. Generally, when you have an investment property (owned by an individual) and funds are taken out that will be used for personal use (i.e. placing the funds into a personal deposit account), the loan would be for consumer purposes. You said that the brother was "unable to purchase on his own." However, this property is owned free and clear by the owner, meaning that there really doesn't seem to be a "sale" - rather, it appears that this is technically a rental property where the brother is paying rent (which happens to be the mortgage payment paid directly to the bank) to the owner brother.

So, is this situation a consumer or business purpose? As you probably know, Regulation Z exempts non-owner-occupied rental property if the loan is to acquire, improve or maintain the rental property.

From the commentary to Regulation Z:
"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."

In this case, however, I still don't think we know what the funds are being used for. If the funds are just going into the personal account of the owner (to replenish his cash, for example), then it really wouldn't be to "acquire, improve, or maintain" the rental property - meaning it would be for consumer purposes. If, however, the funds were being used to buy another non-owner occupied rental property, then this would be for business purposes - but would also be reportable as a purchase.

Therefore, it seems like this loan may be HMDA reportable, depending on the use of the loan funds. For example, if the funds are just replenishing the owners cash, it could be an investment property that is for consumer purposes and, therefore, reportable as an "other" purpose. Alternatively, if the funds are being used to purchase another non-owner occupied rental property, then it would be reportable as a business purpose purchase.

So again, the question comes down to this: What are the money (i.e. disbursement) being used for?