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#2221291 - 09/10/19 04:24 PM Loan purpose?
beegee Offline
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What is the purpose code for this scenario:

Borrower used the equity in his home to purchase a home for his daughter.

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#2221292 - 09/10/19 04:26 PM Re: Loan purpose? beegee
Skittles Offline
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I would say it's a home equity loan. The purpose of the loan is to give funds to the daughter - unless you're taking the home she purchased as collateral also. Then I might re-think.
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#2221293 - 09/10/19 04:26 PM Re: Loan purpose? beegee
raitchjay Offline
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Unless the father is on title to the home being purchased too, i'd code it as an other.
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#2221301 - 09/10/19 05:16 PM Re: Loan purpose? beegee
Inherent_Risk Offline
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On first blush, I'd call this a purchase for HMDA (Home Equity for TRID).

There is no requirement in HMDA that the purchased property secure the loan. Is there a requirement that the borrower take an ownership interest in the purchased property in order to be a purchase? I can't find anything that says so, but I also didn't look too hard. I could see this coming up in the commercial world, where the borrower and the entity the purchased dwelling is titled in are not always the same.

1003.2(j) Home purchase loan means a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of purchasing a dwelling.

I would say that fits this scenario.

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#2221307 - 09/10/19 05:25 PM Re: Loan purpose? beegee
Dan Persfull Offline
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Inherent Risk brings up a good point but I agree with Skittles based on the assumption the funds are being given to the daughter to purchase the property. The funds from the loan proceeds are a gift to the daughter (assumed).

HMDA - Other
TRID - Home Equity

Now if the father purchased the home and gifted the home to the daughter then I would agree with Inherent Risk.

HMDA - Purchase
TRID - Home Equity

So did the father purchase the home or did he give the funds to the daughter to purchase the home?

This also assumes the home being purchased did not also secure the loan.
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#2221313 - 09/10/19 05:49 PM Re: Loan purpose? beegee
raitchjay Offline
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While i agree there's no requirement that the purchased property secure the loan for HMDA, i can't call a transaction where the father gives his daughter money to buy a home a "purchase" for HMDA, because to my way of thinking, if i "purchase" something, at the end of the transaction, i OWN it (at least partially).

And just for the record, it wouldn't matter to me whether the "purchased" home was collateral or not. If the funds were gifted to the child, it wouldn't be a purchase to my way of thinking whether they took the purchased home as collateral or not.
Last edited by raitchjay; 09/10/19 05:52 PM.
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#2221314 - 09/10/19 05:58 PM Re: Loan purpose? beegee
raitchjay Offline
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Webster's definition of "purchase"--ACQUIRE something by paying for it.

this is why i said dad needs to be on the title......you can't (IMO) use the HMDA definition of a purchase and ascribe it to a non-borrowers (the daughter's) actions. A non-borrower acquiring title to a home is a non-event (again, IMO) for HMDA.
Last edited by raitchjay; 09/10/19 06:00 PM.
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#2221318 - 09/10/19 06:05 PM Re: Loan purpose? beegee
Dan Persfull Offline
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And just for the record, it wouldn't matter to me whether the "purchased" home was collateral or not. If the funds were gifted to the child, it wouldn't be a purchase to my way of thinking whether they took the purchased home as collateral or not.

For TRID it most definitely would be a Purchase. See 1026.37(a)(9)(i).

For HMDA I would contend it would be a purchase because the loan proceeds were used to purchase the property. I can't imagine the bank not disbursing the funds directly for the purchase if the purchased property was to also secure the loan.

The whole issue depends on if the funds were given to the daughter or if the father used the funds to purchase the property. At this time we don't know and it is assumed the funds were gifted to the daughter.
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#2221319 - 09/10/19 06:06 PM Re: Loan purpose? beegee
raitchjay Offline
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Since we're in the HMDA thread, i wasn't addressing TRID at all.
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#2221320 - 09/10/19 06:08 PM Re: Loan purpose? beegee
raitchjay Offline
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Dan.......i agree that's the whole issue......in the first scenario, the father uses the funds to purchase the property and gains title to the home (which is why i said in my first post that the dad would need to be on the title). In the 2nd, he doesn't.
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#2221365 - 09/11/19 01:04 PM Re: Loan purpose? raitchjay
Inherent_Risk Offline
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Originally Posted by raitchjay
Webster's definition of "purchase"--ACQUIRE something by paying for it.

this is why i said dad needs to be on the title......you can't (IMO) use the HMDA definition of a purchase and ascribe it to a non-borrowers (the daughter's) actions. A non-borrower acquiring title to a home is a non-event (again, IMO) for HMDA.


I don't necessarily disagree with you, but I am curious to see if anyone has any sort of guidance from a regulator that explains that. I thinks there's a pretty good argument that because the the loan proceeds are going to be used to purchase a dwelling, and the FI knows this, this is a purchase. The fact that the borrower won't be the one purchasing the dwelling doesn't seem to clearly exclude this from the definition of a purchase under HMDA. I don't think it's clear whether the title of the property matters or whether it's just the use of the funds.

Would it matter if the borrower titled a property in the name of a trust or LLC? Would it matter if the disbursement went directly to the daughter or to a settlement agent or seller? I think all of these would be purchase, but I certainly don't think it's clear either way.

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#2221391 - 09/11/19 04:25 PM Re: Loan purpose? beegee
Dan Persfull Offline
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In this case IR you have to determine what the borrower is using the funds for.

Is the borrower using the funds to purchase the property or is the borrower giving the funds to the daughter? If he is giving the funds to the daughter then the loan proceeds are being used as a gift to the daughter. What she does with the proceeds does not affect the loan's purpose.
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#2221393 - 09/11/19 04:37 PM Re: Loan purpose? beegee
Adam Witmer Offline
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I agree with Dan and raitchjay. If the funds are a gift, you wouldn't call it a purchase. If, on the other hand, the borrower was directly going to buy the house and then let his daughter live in it for free, that would be a purchase. If we had to worry about where funds might go second hand or even third hand, that would open up an impossible can of worms...
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#2221399 - 09/11/19 05:32 PM Re: Loan purpose? beegee
RR Joker Offline
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Title shouldn't matter, however. If the father is gifting funds, I agree it's not a reportable purchase...it's just a gift which may or may not be used for a home purchase [ie, could be buying furniture/appliances in conjunction with a purchase]

However, if the father states the funds are for the downpayment of the purchase of a dwelling, it really shouldn't matter who's dwelling that is. How is that any different than a loan to an investor for future purchase of rental property [property unknown]?
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#2221405 - 09/11/19 05:52 PM Re: Loan purpose? beegee
raitchjay Offline
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The difference is.....in the future purchase of rental property scenario, you may not know the property, but you DO know who the buyer is....your borrower. As i stated above, i don't think what a non-borrower does with gift funds makes any impact on HMDA. Now if you're saying that the father states the funds are for the down payment on the purchase of a dwelling, and the understanding is that it's a home HE is purchasing, i would agree that would be reportable as a purchase. But if he says it's for a gift to his daughter, or you otherwise are aware that HE is not actually purchasing a dwelling (again, if HE purchases a dwelling, he'll end up with a title to the home), then it is not reportable as a purchase IMO.
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#2221408 - 09/11/19 06:06 PM Re: Loan purpose? beegee
Dan Persfull Offline
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if HE purchases a dwelling, he'll end up with a title to the home)

We're going to have to disagree on this stance.

I purchase a property with my personal funds, or proceeds from a loan, and then I have the property titled in my daughter's name. I purchased the property and gave it to my daughter. How is that not a purchase?
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#2221411 - 09/11/19 06:18 PM Re: Loan purpose? beegee
raitchjay Offline
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Dan, i respect your stance, but i fall back on the dictionary definition of the word "purchase" (and substitute that definition into the HMDA definition of "home purchase" when i see the word "purchase"). IMO, if you purchase something, you are ACQUIRING it (that is, you now OWN it), either in whole or in part, at least for a time....a day, a week, a month....something.
Last edited by raitchjay; 09/11/19 06:19 PM.
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#2221415 - 09/11/19 06:25 PM Re: Loan purpose? beegee
RR Joker Offline
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I don't agree either because I may well put the home in my LLC name...not my name... but I may be the borrower.
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#2221416 - 09/11/19 06:27 PM Re: Loan purpose? beegee
raitchjay Offline
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What is the difference whether i hand my son/daughter $100,000 cash and let them hand it to the seller or i hand the cash to the seller? Either way, it's a gift transaction if the home is titled in the child's name.
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#2221422 - 09/11/19 06:52 PM Re: Loan purpose? beegee
Dan Persfull Offline
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It is what the borrower is doing with the loan proceeds.

First scenario they are purchasing a dwelling and gifting the dwelling.

Second scenario they are gifting the loan proceeds.

Also remember I preferred this opinion on the home being purchased is also securing the loan, not how the home was titled.

I can't imagine the bank not disbursing the funds directly for the purchase if the purchased property was to also secure the loan.
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#2221427 - 09/11/19 07:10 PM Re: Loan purpose? beegee
raitchjay Offline
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I just can't get past the need for an "acquisition" to take place......and that acquisition needs to be on behalf of the borrower (or in the case of Joker's scenario, an entity controlled by the borrower at least) or the definition of "purchase" is not met. I do agree that the bank would disburse the funds directly for the purchase if the purchase property was to secure the loan--i just don't agree that that makes the loan meet the regulatory definition of a "purchase" for HMDA. Again i'll quote the definition of "purchase"--"Acquire something by paying for it." The definition isn't "letting someone else acquire something by paying for it for them." Just MHO, and we can all agree to disagree.
Last edited by raitchjay; 09/11/19 07:16 PM. Reason: fix mistaken wording
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#2221431 - 09/11/19 07:27 PM Re: Loan purpose? beegee
Dan Persfull Offline
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or in the case of Joker's scenario, an entity controlled by the borrower at least

How does that fit your interpretation of a purchase? The borrower did not "acquire" the dwelling. Using your interpretation unless the dwelling is titled in the name of the borrower the purpose would never meet the definition of a purchase.

As I said this is an opinion we will have to agree to disagree on. smile
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#2221432 - 09/11/19 07:36 PM Re: Loan purpose? beegee
raitchjay Offline
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The borrower controls the LLC, created the LLC, and can dissolve the LLC. The borrower basically OWNS the LLC, so ownership of the home by the LLC is (the way i see it) just part of a chain of ownership that really begins and ends with the individual. But yes, we can agree to disagree.
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#2221435 - 09/11/19 07:43 PM Re: Loan purpose? beegee
rlcarey Offline
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I thought the "Purpose" of the loan was a statement made by the borrower??

A Home Purchase Loan is a Closed-End Mortgage Loan or Open- End Line of Credit that is for the "purpose", in whole or part, of purchasing a Dwelling.

If I get a loan to install a pool - are you going to come out and make sure I really did it to classify the loan as home improvement? If I say I am borrowing money to purchase a 1-4 dwelling - I am not sure what difference it makes.
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#2221437 - 09/11/19 07:46 PM Re: Loan purpose? beegee
raitchjay Offline
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I don't think anybody has been arguing that Randy. The argument has been whether gift funds are counted as purchases and what constitutes gift funds and what doesn't.
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