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#2229607 - 01/24/20 05:54 PM Revolving LOC to construct home
burke116 Offline
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Joined: Jun 2014
Posts: 542
RVA
Never run into this before: I have a 12 month, commercial, revolving line of credit secured by a dwelling. The purpose of the line is to take the funds and build a rental home one a separate piece of property. The plan is for the line to be paid down once the rental is built through the sale of other real estate. The line will remain open (and renewed every 12 months) to be used as working capital.

I don't think the construction exemption would apply, because this line is not exclusively for construction: A construction only loan or line of credit is considered temporary financing and excluded under Regulation C if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale.

With that being said, is 'construction' considered a "purchase," if done outside of the construction exemption? Or would this just not be reported?

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#2229608 - 01/24/20 06:08 PM Re: Revolving LOC to construct home burke116
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 79,353
Galveston, TX
Well the piece really missing here is that they are not planning on selling the property being constructed.
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#2229610 - 01/24/20 06:13 PM Re: Revolving LOC to construct home burke116
burke116 Offline
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Posts: 542
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Edit: Oh I see what you're saying. No this is not spec or presold. This line is not being replaced. So would the construction count as purchase then?

A transaction is excluded as temporary financing if it is designed to be replaced by separate permanent financing extended to the same borrower at a later time.
Last edited by burke116; 01/24/20 06:15 PM.
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#2229611 - 01/24/20 06:28 PM Re: Revolving LOC to construct home burke116
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 79,353
Galveston, TX
It is not a temporary loan as there is no replacement financing contemplated.
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#2229615 - 01/24/20 06:51 PM Re: Revolving LOC to construct home burke116
burke116 Offline
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Joined: Jun 2014
Posts: 542
RVA
It may be because I'm knee deep in finishing up for year-end, but I was having a hard time wrapping my head around whether the construction of this home falls under a purchase HMDA purpose. New construction will always be reported as a purchase, unless the temporary or "for sale" exemption exists. Whew, sometimes things just don't "click" after so many loans.

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