First - this is one of the best and well thought discussions I've seen here in a long time. My thanks to all of you participating.

Second - I will offer one observation. Repeatedly there is the comment to check with your primary regulator as it's their opinion which matters. That isn't entirely true because unless your primary is the CFPB, your agency can offer it's informal opinion (which ay get you by for now), but Reg C is "owned" by the CFPB and if it has been asked, and it answered specifically, then it is the CFPB that needs to be convinced as it is the entity that will offer an official opinion, and it seems to have done so based on what was posted here. Even if your (not the CFPB) examiner says s/he agrees with you, that comment will be followed with a "but" and that's where your day goes from good to bad.

This has been a really beneficial discussion . . . Thumbs up for your input

I always appreciate a good discussion and it's hard when we're not all in the same room working through this. I'm going to step back and try to sort out some of the things that have been stated.

1. I don't disagree with the CFPB's Construction FAQ (#1). I liken it to the Commentary to §1003.3(c)(3) #1(v) that basically says short term loans are not (excluded) temporary. What is described in the FAQ is similar to a "splash and dash" or "flipping" where you purchase a house, fix it up and sale it. The FAQ clarifies that even if the house is torn down, it's still reportable. My personal opinion is because this has to do with housing - what HMDA is all about.

2. I still disagree that a house is always a house. We can all see different things in our mind, so I tried to post pictures of buildings that no one would reside in. I believe that we should look to the borrower's intentions to determine if a building is a dwelling, similar to other places in Reg C where it states an institution may rely on the applicant's stated purpose. Why would the CFPB want statistical data on an application if the borrower didn't intend to have residential purposes with an existing building? This is further supported by the Commentary to §1003.2(f) #4 that discusses mixed-used properties; the Commentary to §1003.3(c)(9) #1 that excludes ag loans (even if there is a dwelling located on the property); the Commentary to §1003.2(f) #3 that excludes houseboats and floating homes even if they are used as a residence, etc.

3. Along a similar line of thought is the confusion about the Commentary to §1003.2(f) #3 discussing "…homes converted to daycare facilities or professional offices…". I see the angle that this is past tense (already converted), but again, why would the CFPB want statistical data on an application if the borrower doesn't intend to have residential purposes with the existing building? For example, I purchase a "house" but I will convert it into my consulting office with the loan proceeds. The Commentary states ". . . and structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices." Some are saying I'm adding the words ". . .such as homes (THAT WILL BE) converted to . . ." I believe some are adding the words ". . .such as homes (THAT WERE) converted to . . .". I hope that's clear.

I'm trying to clearly articulate these thoughts and plan to submit them to the CFPB for further clarification. If what I'm saying above isn't clear or if you have a better way to state what I'm trying to say, please let me know.

Thanks.

Understand and mostly agree with your points. The big issue though with #1 is that such "splash and dash" with a new construction is specifically mentioned as an excluded transaction. If the existing home has no consideration as a dwelling, then I don't see it having any difference with a property where only a lot exists with sewage, etc. and a brand new home is constructed.

2. Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

I think we have a different definition of "splash and dash". In my area, that's the term that is used for purchasing a home, remodeling it and reselling it. Those are not excluded. So my point in #1 was it doesn't matter if you:
1) buy a house, fix it up and sell it; or
2) buy a house, raze it and build a new one.

Both are reportable.
Hopefully, my #1 (above) now makes sense.

We wrote the following to the CFPB. Hopefully, we can get a reply and further clarification:


Comment #3 to §1003.2(f) states “…structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices” are excluded from the definition of a dwelling. Does this exclusion apply to applications where the loan proceeds will be used to convert a structure designed as a dwelling into a daycare center or office? Or, is this exclusion intended to apply only to applications secured by structures which were once a dwelling and have already been converted to daycare facilities or offices and are now being pledged as collateral?

Another scenario we frequently run into are loans secured by structures originally designed as dwellings, but have since been abandoned and currently in such poor condition that there is no intention for the structure to be used as a dwelling. In these cases, the intent is not to improve the structure for it to be lived in; rather, the property which happens to include the structure is being used for a different purpose. The structure originally designed as a dwelling will not be used for any purpose; rather, it merely comes with the land that the borrower wants to purchases, for example. Do structures that are in such poor condition that there is no intent for someone to dwell in still fall under the definition of a dwelling? Here are some examples of structures originally designed as dwellings, but obviously no longer intended to be used as such: https://i.pinimg.com/originals/af/ba/5c/afba5c61cee73d4db377da0d12705656.jpg

Ultimately, does an institution look to a borrower’s intention of whether a structure originally designed as a dwelling will actually be used in the future as a dwelling? Or, is a structure originally designed as a dwelling always a dwelling unless or until it becomes something else (e.g. an office or daycare)?

Yes, sorry, I incorrectly used the term. I was trying to make the point that the (2) definition you mentioned of "buy a house, raze it and build a new one" is conceptually the same thing as constructing a new spec home if we don't give any credit to the fact that the home that will be raised is a dwelling.

That's more the type of picture I would agree with as not being a dwelling, though I still guess the CFPB wants these reported when purchased. That structure is JACKED up.

I will write a similar question to the CFPB as well. Perhaps with several commenters, they will be more inclined to answer the question.

Good idea. Maybe they can see how we are struggling to fully understand their intentions. Hopefully, we can get written guidance.

David - Wondering if you got a response on this from the CFPB? Thanks!

You aren't really expecting the Bureau to respond to a question that controversial so quickly, are you? It's only been four business days since David posted here to say he submitted the request.

We actually got a response on Friday - 3 business days from submitting the questions! I hate this, but I was wrong on all accounts.

Issue #1: Comment #3 to §1003.2(f) states “…structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices” are excluded from the definition of a dwelling. Does this exclusion apply to applications where the loan proceeds will be used to convert a structure designed as a dwelling into a daycare center or office? Or, is this exclusion intended to apply only to applications secured by structures which were once a dwelling and have already been converted to daycare facilities or offices and are now being pledged as collateral?

The attorney said this was past tense. IOW, a dwelling that is converted to a non dwelling, is still a dwelling for HMDA. This makes no sense to me from a pricing & application process standpoint, but it's what they said. So, a dwelling has to become a non-dwelling and then (the next time you use it for collateral) it's not a dwelling.

Issue #2: Another scenario we frequently run into are loans secured by structures originally designed as dwellings, but have since been abandoned and currently in such poor condition that there is no intention for the structure to be used as a dwelling. In these cases, the intent is not to improve the structure for it to be lived in; rather, the property which happens to include the structure is being used for a different purpose. The structure originally designed as a dwelling will not be used for any purpose; rather, it merely comes with the land that the borrower wants to purchases, for example. Do structures that are in such poor condition that there is no intent for someone to dwell in still fall under the definition of a dwelling? Here are some examples of structures originally designed as dwellings, but obviously no longer intended to be used as such: https://i.pinimg.com/originals/af/ba/5c/afba5c61cee73d4db377da0d12705656.jpg

The attorney looked at that picture and said it was still a dwelling. Honestly, I want to throw up, but at least we have a bright line test. It's not sensible, but it is something you can consistently apply. If a building was ever inhabited, it is a dwelling even if only cockroaches and rats are the ones willing to inhabit it. I've lost all faith in common sense on this one.

There you have it. For those of you that already believed this - congratulations and thanks for challenging my responses.

I am now fully convinced the world has gone mad. I disagree with the logic on both of these, but it doesn't matter. I will comply.

That's a real 2020 answer.

I've been lurking in this thread and find the discussion very interesting. Thank you for reaching out and relaying the CFPB's responses, David. IMO, this is just another case where "the spirit of the regulation" takes a back seat to the real world and doesn't matter as long as meaningless technicality works against us. R.I.P. common sense.

Thank you David for contacting the CFPB for us to get some sort of clarification on this issue. I will copy and save this summary for future references.

Sweet. I guess when EVERYONE told me I was wrong at the beginning of the thread, jokes on them .

Jokes aside, this is great that they have made it clear, though I agree not necessarily all that logical, though as I have argued from the beginning, this is where a literal interpretation of the Regulation, Official Interpretation, and the FAQ leads. I would still be concerned about getting an FRB/FDIC/OCC/NCUA examiner with their own take on the issue, but this clearly seems to be the position of the CFPB and they have Rulemaking authority. Hopefully, they will add this to the existing FAQ's. I still need to send my note and see if a different answer arises.

I consider myself a literalist too......and when i literally read the definition of "residence" and "residential property", i can't get myself to the place that the CFPB has gotten themselves to. But yeah, it's obvious now that that is the stance they're taking.

I still say.....by taking this stance, they have created incongruity with their own definitions (or lack of definitions, which then default you to the dictionary). I think such a stance and FAQ should require an addition to their definitions. Personally, i don't care much for regulating by FAQ and email. I prefer regulating by the words in the regulation.

FWIW, these are the pictures I used in my question about qualifying as a "dwelling."

https://www.alamy.com/stock-photo-d...cottage-with-roof-caved-in-16547453.html

https://3xnhi43vikn244hoyg160zl4-wp...5955_web1_180308-NAL-house-collapse1.jpg

https://www.picfair.com/pics/062961...private-country-house-with-caved-roof-in

Oh, yeah! We'll move right IN, NABW!

With this illogical, but clear bright line test, of what a dwelling is, Compliance Officers all get to look like fools when they tell their loan officers they have to do HMDA on these non-dwellable dwellings. Compliance Officers already get a bad rap from loan officers about how ridiculous "our" rules are. It doesn't matter to a loan officer that you say "I don't make the rules" they still see the Compliance Officer in a negative way in cases like this. Sad.

I agree that this conversation has been enlightening and thanks to everyone who reached out to the Bureau to get answers. Now I just wish they would say why those are considered 'dwellings' when they have been abandoned for years and falling in on themselves, yet a MH constructed before June 15, 1976 (I think I got the date correct) is not a dwelling under HMDA. Mind you, I like that exemption because there have been several loans we have not had to report because it was not a 'dwelling' under HMDA, but these MHs were in much better shape than the pictures the Bureau considered dwellings.

Along those same lines CloudShape:
A houseboat, where someone resides as their permanent residence, is not a dwelling.
A MH Park is a dwelling even if the park only has pads and no actual MH's on it.
A loan to someone to build a spec house is not reported, but a loan to flip a house is.

A loan to buy a house and turn it into an office is reported, but a business operating loan (non-dwelling related business) secured by the business owner's house, it is not reported.
If I refinance that same business operating loan, it is reported.
A home improvement loan to a farmer to improve their home (located on the farm) is not reported.
A home equity loan to a farmer (using the house located on the farm) is not reported.

*I just quickly typed these inconsistencies / illogical scenarios off of the top of my head. I'm sure there are more.

Thank you David. That was a quick response. I appreciate all you do!!

Sorry John - I obviously did not even think about the timing of his post and my question. Looks like he got a quick response this time.

Spoke with the CFPB contact today. He seemed to allow for some leeway in terms of not considering a structure to be a dwelling based upon the condition of the property. However, he noted that the definition does not offer any examples of exclusions based on habitability. He mentioned Detroit as a reference for where purchasing dilapidated homes and razing them for new construction, or other purposes, would be something that housing advocates, etc. would want data on. Basically, the general stance was that if it was ever a residence people lived in, then, unless it had already been converted to one of the excluded structure types, a borrower is purchasing a dwelling under HMDA in these scenarios. He stated that any deviation should be documented in your CMS and properly supported to show your examiners why you didn't consider such a "jacked-up" building to not be a "dwelling."