I'm now curious why spec home construction is excluded from reporting at all, based on their current views.

I'll offer for the last time: i don't see why the "examples" need to specifically make an exception for "habitability" when the definition of "residence" and "residential property" contains that exception....i.e., if a structure cannot support someone to the point that they can live in it, it isn't a residence, nor residential property. Obviously, the folks you are talking to at the CFPB don't care about this......but it's very obvious to me. "Gee, where are the examples in the regulation about dilapidated houses?" Why do you need such examples, when you have definitions? I'm sorry.....makes zero sense to me.

I'm now curious why spec home construction is excluded from reporting

They are excluded under the temporary financing exemption; not because they are considered non dwellings.

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 didn't think they were considered non-dwellings.....i'm just stating that it seems odd to me with all of these statements about needing to keep tabs on the "housing activities" of such things as razing old, dilapidated dwellings, why ANY loan secured by an actual dwelling doesn't need to be reported to keep the CFPB up to date on "housing activities".

So now spec home construction is exempt.....but razing a structure that was a home 140 years ago and then constructing a spec home is not exempt. That's where my question is coming from really, since that makes no sense to me. A spec home loan has imminently more to do with housing needs and activities than a loan to raze a "dwelling" and build a pet store. But the spec home loan is not reported....the pet store loan is (at least if you listen to the CFPB).

Basically, because it is land only once you start the build and the purchase pf the spec home is likely caught on the back end with a reportable transaction. That would seem to be how the Regulators look at it, but I agree with you as a spec home could also be purchased with cash and, thus, never be reported.

I imagine that notwithstanding David's report of the Bureau's response to his well-worded inquiry, this discussion will continue in other venues until the Bureau issues something official on these questions.

To be fair, HMDA and Reg C have always been problematic going back even to the old regulation.

The thing with these definitions is they do not come from HMDA. There are plenty of other instances where a dictionary definition doesn't match a Compliance Regulation definition. Where in the dictionary definition of "Purchase" would you find standing for initial construction of a home where you already owned the lot?

Where in Reg. C does it give a definition of "residence" or "residential structure"? Without a definition for those, do we not have to default to the dictionary?

Just a grand example of how convoluted regulations can become. I think of all the mobilehomes turned storage buildings and recently one I had which is an old gas station that is used as a dwelling.

This whole contradiction now makes me rethink the gas station. I reported as a dwelling because that's exactly what it's used for. Designed for? No.

I actually know of two of these exact situations in my area. Wonder what the bureau would consider those commercial-structures- used-as-dwellings to be. HA.

I am hoping for a bit of clarification for whether or not to report in the following scenario, please:

We had an original loan for a lot purchase that the SFR was to be razed, which we reported it for HMDA. Now, there is a loan for the construction of two new spec homes on the lot which has been designated as a horizontal property regime. Some of the funds on the new loan were used to pay toward the previous loan, but not pay it off.

So here are my many questions:

1. Would you considered this a reportable transaction?
2. If it is reportable, would it be a refinance even though the prior loan was not fully satisfied and replaced?
3. If not reportable, would it be because the new loan is for a spec home build or because the new loan didn't fully replace the prior one?
4. Does the horizontal property regime come into play at all? Each new loan is for the separate "A" and "B" dwellings.
5. If the new loan fully satisfied and replaced the prior one, would you report it as a refinance or not at all because it is now a draw down loan to build the spec home?

I would appreciate any help that you can give. Thanks!

*bump*

Does anyone have thoughts on this? I could really use the help, since I have multiple loans with this same scenario.

"horizontal property regime" - you mean these are condominiums?

They are not. They purchase the lot with a dwelling that they tear down and then build two houses on that lot that are a front house and back house scenario. They are not attached and end up being addresses similar to 1234A and 1234B.

Randy - these are occurring locally in Nashville as part of the gentrification of various areas. They are generally tall (3 story) and skinny houses.

But these are still planned unit developments - similar to a condo: https://www.lawserver.com/law/state/tennessee/tn-code/tennessee_code_66-27-103

IMHO - These would be reportable as a purchase loan, regardless of the refinance that is happening, if they are not temporary construction loans.

3. Purpose—multiple-purpose loan. Section 1003.4(a)(3) requires a financial institution to report the purpose of a covered loan or application. If a covered loan is a home purchase loan as well as a home improvement loan, a refinancing, or a cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the loan as a home purchase loan.

It is the same borrower on the new loan to build the spec homes as the previous one to buy the lot with the house on it that they tore down. Can you clarify why you believe purchase would be the purpose? I see it as possibly a refinance, but the concern is that they only paid down the lot purchase loan, they didn't pay it off with the new proceeds. We have quite a few and I am trying my best to simplify it in here, but they really are difficult to follow. My gut is thinking that the new loan to do the spec homes would not be reportable at all, but I wanted to get some other opinions, just in case I am way off base.

3. Purpose - multiple-purpose loan. Section 1003.4(a)(3) requires a financial institution to report the purpose of a covered loan or application. If a covered loan is a home purchase loan as well as a home improvement loan, a refinancing, or a cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the loan as a home purchase loan. If a covered loan is a home improvement loan as well as a refinancing or cash-out refinancing, but the covered loan is not a home purchase loan, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a refinancing or a cash-out refinancing, as appropriate. If a covered loan is a refinancing or cash-out refinancing as well as for another purpose, such as for the purpose of paying educational expenses, but the covered loan is not a home purchase loan, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a refinancing or a cash-out refinancing, as appropriate. See comment 4(a)(3)-2. If a covered loan is a home improvement loan as well as for another purpose, but the covered loan is not a home purchase loan, a refinancing, or cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a home improvement loan. See comment 2(i)-1.

3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.

At the time you do the 2nd loan, what is your collateral? Just the lot with the torn down house, or does the to be razed house still exist?

At the time of the second loan, the house was already gone. The collateral is the lot. I do want to add that the collateral was always just the lot, according to the approval/documentation. However, when the appraisal was provided to us, it very clearly had an existing dwelling in each of these scenarios. Not that it makes a difference, but all of them would have been habitable. The decision I ended up making was to not report and to treat it as a new loan for a spec home build. Do you feel you would have done the same?

This is a bit of a strange situation, but here's my reading. Spec homes are excluded under 1003.3(c)(3) - Comment 2, which limits the exception to instances when the funds are "extended to a person exclusively to construct a dwelling for sale." Sounds like yours was to pay off some debt as well, so it doesn't fall under the exemption in my eyes, and would be a reportable purchase as a non- spec home construction loan.

I agree

You have a loan where funds will be used to construct a dwelling. Your current collateral is the bare lot, but you know the funds will be used within 2 years to construct a dwelling (I'm assuming it will take place reasonably fast). The loan will not be used exclusively to construct a spec home, but only somewhat because some of the funds paid off existing debt. In the HMDA waterfall you would start with Home Purchase. It would not be a refinancing regardless because it doesn't satisfy and replace the lot purchase loan.

[12 CFR 1003.3(c)(2) Official Interpretation
1. Loan or line of credit secured by a lien on unimproved land. Section 1003.3(c)(2) provides that a closed-end mortgage loan or an open-end line of credit secured by a lien on unimproved land is an excluded transaction. A loan or line of credit is secured by a lien on unimproved land if the loan or line of credit is secured by vacant or unimproved property, unless the institution knows, based on information that it receives from the applicant or borrower at the time the application is received or the credit decision is made, that the proceeds of that loan or credit line will be used within two years after closing or account opening to construct a dwelling on, or to purchase a dwelling to be placed on, the land. A loan or line of credit that is not excludable under § 1003.3(c)(2) nevertheless may be excluded, for example, as temporary financing under § 1003.3(c)(3).]

[12 CFR 1003.2(j) Official Interpretation
3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.]

One thing you didn't mention was if the current loan will be taken out later by permanent financing. If this is the case, then the loan would not be reportable due to being "temporary financing," otherwise though, I would agree with Inherent_Risk and consider this a Home Purchase loan.

Compliance NABW: If you are asking about the new loan for the same builder to construct the spec home on that lot, it of course will be sold to a buyer and it will not in any way be the same borrower (the builder) for the actual permanent financing.

So, you are choosing Purchase because of the exclusivity portion of the spec home exception? Since the builder paid down the original lot loan with some of the funds, you no longer accept the new loan as being "extended to a person exclusively to construct a dwelling for sale," correct? I can understand that. Not sure if I want to agree with it, but can understand your take on it.

I don't know why I didn't catch the response @Libelle, but if the intent is to sell it to a borrower within the time of the initial loan, then it wouldn't be temporary financing.

Yes, you are correct. The loan is not being used EXCLUSIVELY to construct the spec home because of the payment towards the previous lot loan. The transaction is, therefore, reportable and is a Construction loan not being replaced by Permanent Financing, so it is a "Home Purchase" per the Regulation.