We have a declined application for a HELOC to fund the construction overruns on a new principal dwelling construction loan. The current principal dwelling was the intended collateral. The loan officer declined the application because we don't grant that type of loan. We have differing opinions on how or whether to report this application for HMDA purposes. The loan officer reported this as a 2-Home Improvement loan application. We (compliance personnel) are debating whether this should be reported as a 4-Other Purpose application or whether it should not be reported at all based on it being a short-term construction line of credit. Your help is appreciated!

Does your financial institution currently report HELOCs on the HMDA LAR?

Yes we do.

It's going to depend on the applicant's intention. Was this HELOC going to be paid off AND closed with another loan (e.g. permanent loan when construction is complete)? That's the only way this loan would be temporary and not be reportable. Otherwise, if they plan to keep the HELOC open or payoff and close it with the sale of the old primary, then the HELOC is reportable. I can't think of anything off the top of my head in the reg. that addresses the purpose in this situation. Although the dwelling is not completed yet, I'd go with a purpose of Home Improvement.

How could it be home improvement? It's to construct a residence not improve it.

Like I said I'm not aware of anything in the regulation that addresses this situation. My thoughts are if they are having overruns then most of the dwelling is complete and these funds are the final touches. I would document the file and explain my reasoning. If you want to go the "Other Purpose" route then document that there is no dwelling to improve, and you should be good.

The purpose of the HELOC request was to complete the initial construction of the dwelling. IMO this would be a purchase transaction.

Dan, I read the situation as the HELOC was in addition to the initial construction loan and was not replacing the construction loan, which is why I ruled out purchase.

for a HELOC to fund the construction overruns

This why I opined purchase. In this case I see the HELOC as a const/perm loan. It is for the construction of the dwelling and it would be the permanent financing for that portion of the construction.

A HELOC would not be temporary financing, or if it is then it shouldn't have been processed as a HELOC because that would be structuring a closed-end credit as open-end credit to avoid disclosure requirements.

I get Carolina Blue's position, but I agree it's purchase if the HELOC is used to finish construction.