We have a draw down line of credit for new construction, which will convert into 20 year notes if the property isn't sold after completion. The borrower owns the land and their is no structures on it. Is this HMDA Reportable as a purchase or not HMDA reportable at all?

What is the current collateral for the line of credit?

Collateral is the house that is being built. I think I found the commentary states that a loan or line of credit is considered temporary financing and excluded if the loan or line of credit is extended exclusively for the purpose to construct a dwelling for sale, which is what they are doing.

When you say these loans convert to 20 years, if that conversion is built into the "line of credit" note, then you have a one-time close construction/permanent loan and the loan is not temporary financing and needs to be reported.

But if the conversion is done by execution of a modification agreement, what then? Modifications are not reportable. So this loan falls through the loophole. You have temporary financing (designed to be replaced by a new loan of a longer term) and so it's not reportable. And the modification (the perm) is not reportable either.

The loan is to construct a dwelling for sale, so I agreement that these loans would be exempt.

swiggles - that may no longer be the case. If the lender is contemplating a conversion of the construction loan via a modification at the time the construction phases finishes, while the modification would be exempt, the reporting of the construction loan would not be, as it is not temporary financing.

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.

Never thought of it that way!......the construction loan NOT being considered temporary financing. So, if the loan is modified same reporting year, still report only the terms of the construction phase, or change it to the perm terms?

The key to what Randy said is this: If the lender is contemplating a conversion of the construction loan via a modification at the time the construction phases finishes, . . .

If the intent was to do a construction loan and then replace it with a permanent loan (not contemplating a modification), then it falls through the cracks. However, this should be the exception, not the rule.

Not in Texas - construction portfolio loans are routinely modified into permanent loans all the time, although not acceptable for secondary market.

Don't ask me why...……………….. I personally have never understood the practice myself

swiggles - you would report the construction loan only. The permanent phase would be exempt because it is done by modification.

Fortunately, we did away with the "modification practice" here for a variety of reasons. But once in a great while, a borrower (usually and entity) might get a loan to construct an investment property for leasing. These would more than likely be modified to permanent financing. Generally, the file isn't specific about the "intent". The only clue is on the officer write up....and is that the source of repayment would be the sale of the property.