HELOCs have been giving our QA team a headache! Sometimes the borrower is very clear about what he intends to do with the requested proceeds under a HELOC. Often, the borrower just wants the availability of the proceeds and may spitball ideas while sitting in the lender’s office. The multiple-choice purpose is typically selected as “Line for future use”. Here are some real-live examples of comments we’re seeing in the loan history comments:
-“Future use—potential new home purchase on horizon. No contract in place.”
-“Client may use line for Home Improvement or for vehicle purchase, not quite sure yet, but wants to have it out there.”
-“The purpose of the loan is to have a LOC in place, utilizing the equity in his home for possible purchase of more real estate in the future. No plans now.”
-“Loan standing clients looking to utilize their equity available in their primary residence as down payments for potential properties in the future. They do not have a specific property in mind yet.”

So which direction do we go/have you gone? Report all the above scenarios as “Other” purpose because the purpose is not clearly stated? Or, the reverse…. If a potential purpose is suggested—even as a possibility—should it be reported with that HMDA purpose?

I think all the lenders can do is make a judgment call based on what the applicants are telling them and make sure the file is documented to support what you're reporting. In other words, "slam the door", so it can't be questioned later. In your specific scenarios, I would lean towards reporting the proposed purpose rather than "Other". It seems like in three of the four, the applicant is saying they are getting the line to buy more properties. Assuming you fully anticipate these properties to be dwellings, I don't think any of these should be "Other". Remember as well, that there is no "Other" purpose for reporting purposes if the primary purpose of the loan is business or commercial.

The home improvement/vehicle purchase is seemingly a toss-up to me, but since home improvement is documented, that's how I would report it. I'm obviously not sure how your system works or who sees the loan history comments, but I think someone seeing that could make an issue of it otherwise.

I agree with Diane's analysis. Rely on the borrower's stated purpose for the loan.

6. Statement of borrower. In determining whether a closed-end mortgage loan or an open-end
line of credit, or an application for a closed-end mortgage loan or an open-end line of credit, is
for home improvement purposes, an institution may rely on the applicant's or borrower's stated
purpose(s) for the loan or line of credit at the time the application is received or the credit
decision is made. An institution need not confirm that the borrower actually uses any of the
funds for the stated purpose(s).

I would try to get rid of that option. I would make the choices line up with HMDA unless someone is using those options for something. We used to have several dropdown options, and it was a pain. We asked, and nobody else used/cared about that field. A system fix with a little LO training made life a lot easier on the back-end.

Besides that, I agree with everyone else. Document what they say, even if it's not for sure. If you have something in the file that says purchase, then you're done, if not, move on down the purpose waterfall until you hit Other.

I would agree. While we don't currently report HELOCs (will in 2022), I see 'future use' many times and the purpose is a refinance of a previous HELOC.