The mixed-use rules are another "look forward" example. Sure, not exactly the same (as they are not specific to a purchase), but definitely a "look forward" example.

Originally Posted By JPC
I don't really see much support in 2018 HMDA for "looking at the building once the loan funds are applied." I see that HMDA reporting is necessary when there is a covered loan secured by a dwelling that is located in the 50 states, DC, or Puerto Rico. A covered-loan is a closed-end mortgage or open-end credit plan that is not an excluded transaction under 12 CFR 1003.3(c). So, in this scenario, I have a closed-end loan secured by a dwelling located in the 50 states and I do not see an exclusion under 1003.3(c). So, check, check, and check.

Im pretty new at this and this might be a stupid question BUT how can a loan be secured by a dwelling that will no longer be there?

In my area, this happens quite a bit on the lakes. A small old cottage is on a beautiful plot of land on a lake and the cottage is torn down and a huge lake house is put up. It's really not much different than a regular construction loan in that the plot needs prepping before building the new home.

So.... As I was digging in the preamble to the 2015 final rule and the 2017 final rule, I found a statement that is included in both (see footnote 82 in the 2017 final rule for a slightly different version):

"Examples of commercial-purpose loans that currently are reported are: (1) A loan to an entity to purchase or improve an apartment building (or to refinance a loan secured thereby); and (2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property (or to refinance a loan secured thereby)."

If you break this apart, it seems to say the following: “a loan to an individual” …. “to improve a single-family home to be used”… “as a professional office”… is “currently” … “reported.”

Next, I looked at the commentary to the definition of a dwelling in comment 1003.2(2)(f)(3):

“Also excluded are … structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices.”

This example states that when a home is already converted to a business, it is no longer a dwelling and not reportable. However, this example does not appear to specifically address situations where the home is not already converted, but is going to be converted with the loan proceeds (and thus never used as a dwelling). Many compliance professionals (including myself) have applied the logic from the comment regarding an already converted structure to create an understanding that if a home is going to be converted to a non-dwelling business structure with the loan proceeds, that the home is also no longer a dwelling (based on the intended use of the property/structure), and therefore not HMDA reportable.

So, based on this and the discussion in this thread about not reporting a purchase of a dwelling to tear it down and build a spec home, I submitted the following two questions to the CFPB:

1) QUESTION 1: If an individual buys a single family home where the loan proceeds will be used to convert the home to a professional office (e.g. chiropractor) and the single family home structure will never be used as a dwelling, is this loan HMDA reportable?

2) QUESTION 2: If a builder buys a lot that contains a house to tear it down in entirety and build an entirely new dwelling, is this loan reportable as a purchase or is it excluded as a loan for a spec home?

After the initial response did not answer my question because it just quoted the reg I have read many times, I asked for further clarification. I received two calls from two different CFPB employees who both gave the usual disclosure that their response was only "informal staff attorney advise" and not a legal interpretation of the rule, so take this for what it is.

For question 1, I received a call from Joe Devlen(sp?) at the CFPB who stated he discussed this with several other staff attorneys and they all agreed that the loan would be HMDA reportable as the structure was a dwelling "at the time the loan was made." He reiterated that the key was what the structure was "at the time the loan was made." He then quoted an older interpretation from the Fed (that he said was informal guidance) which he said was basically the opposite situation, but they did their best to align with prior interpretations. He said the Fed's situation had to do with a structure that was not a dwelling at the time the loan was made but was being purchased to convert into a dwelling - the Fed stated that this was not HMDA reportable as the structure at the time of closing was not a dwelling. I then discussed a few instances of the "forward use" theory that was discussed in this thread, but he kept coming back to his statement of "at the time the loan was made."

For question 2, I received a call from a Francis at the CFPB. His reply mirrored that of Joe's, in that he stated that the spec home exception from the 2017 final rule would not apply as there was a dwelling at the time of the loan. Therefore, he said the loan in my question 2 would, in fact, be HMDA reportable.

Therefore, it appears that the CFPB is currently looking at whether there is a dwelling "at the time the loan was made" to determine if a loan is HMDA reportable, regardless of the purpose of the dwelling.

I would be curious how they are defining a building sitting on a property with no inhabitants (and no plans to ever have inhabitants) as a "dwelling".

I mean...i technically agree with them....if there's a "dwelling at the time loan is made", then yeah, you have a reportable transaction. It's just not a "dwelling" without someone living in it or any plans for someone to live in it.

I would be curious how they are defining a building sitting on a property with no inhabitants (and no plans to ever have inhabitants) as a "dwelling". . . . . . .It's just not a "dwelling" without someone living in it or any plans for someone to live in it.

Being inhabited as a condition to be classified as dwelling is a "dictionary" definition of a dwelling.

I have argued for years that no where in Reg. C or its Commentary does the structure have to be inhabitable to meet the definition of a dwelling. For HMDA purposes a dwelling is simply a residential structure.

(f) Dwelling means a residential structure, whether or not attached to real property. The term includes but is not limited to a detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home, or a multifamily residential structure or community.

Now for the "forward" use of the property opinion. I will have to rethink my position on that. I too have always held to the theory that if a dwelling was being purchased to be converted to an office, storage facility, etc. the loan would not be reportable but it appears the CFPB is taking the opposite approach to it being reportable based on it being a dwelling at the time the loan is originated.

Dan, but if you look up the dictionary definition of "residential" you get "used as a residence or by residents", so if you then look up "residence" you get "a person's home; the place where someone lives".

So how can a building that no one lives in and no one ever will live in be a "residential structure"? The regulation doesn't define "residential structure", so my understanding in those cases is.....go to the dictionary.

I have heartburn over this as well.. We often have farms [won't be an issue going forward ] where there are uninhabitable old farm houses. We don't report them. They just aren't dwellings except for mice and such. Maybe a passing vagrant...so I guess that may make them transitory

The thing that got me was what I quoted already from the 2015 preamble and this footnote 82 from the 2017 final rule:

82.  Current comment 2 (Home Improvement Loan)-4. In the 2015 HMDA Final Rule, the Bureau explained that “[e]xamples of commercial-purpose loans that currently are reported are: (1) A loan to an entity to purchase or improve an apartment building (or to refinance a loan secured thereby); and (2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property (or to refinance a loan secured thereby).” 2015 HMDA Final Rule, 80 FR 66128, 66169 (Oct. 28, 2015).

I am starting to think that a "hard line" dwelling test would probably be easier in the long run than the "forward" use approach many of us have traditionally used. That said, I'm not sure a "hard line" test really aligns with the intent of HMDA which is to help show whether lenders are serving the housing needs of their communities.

That is the key, IMHO.

I think the regulation defining "dwelling" and "residential structure" would be helpful. Again, i don't understand their answer--they do not define "residential structure" themselves in the regulation, and the Webster's definition of it (as i have quoted in here twice) leads one back to it needing to be resided in in order to be both a "dwelling" and a "residential structure".

I appreciate your research and providing your thoughts on this Adam. This is a paradigm shift and I'm not necessarily drinking the cool-aide just yet. You said:
I am starting to think that a "hard line" dwelling test would probably be easier in the long run than the "forward" use approach many of us have traditionally used.
I don't agree. I think a "hard line" test of "what will it be once the proceeds have been applied" is easier. Think about a bare lot (already owned) where I'm building a house. That is a purchase because there WILL BE a dwelling with the loan proceeds. If you apply the CFPB logic that you were given, this wouldn't make sense. There's no house there now and I already own the lot. How can it be a purchase with this new thinking?

I don't see any part of this as a change from the old to the new rules. I've also never had a client get cited for applying the "forward" approach. Why the change in thinking?

Great thoughts, David, and I appreciate the opportunity to work out some of the finer points of the new HMDA rules on these threads.

First, I haven't fully drank the cool-aide yet either, but now find myself split. What bothered me the most was the statement in footnote 82 (and the preamble to the final 2015 rule) that basically says “a loan to an individual” …. “to improve a single-family home to be used”… “as a professional office”… is “currently” … “reported.” And then add on the CFPB's response I got...


This is a great point and was actually part of my argument for the "forward" approach. When I talked with the attorney from the CFPB (who stated he discussed this with 2-3 other HMDA attorneys at the CFPB who all agreed), he seemed to view this as a special provision (sort of an exception, maybe like reporting permanent financing of a new build as a purchase rather than a refi) that was specifically addressed by the rule. He said that when they are answering questions they are not providing a legal interpretation, so they try to just read the actual rules in the regulation and not apply logic (my word) from other parts of the rule. In this case, all they could go on was that there is a dwelling at the time of the loan and there was not a separate part of the rule that specifically addressed this situation one way or another. He did reiterate that this was not an interpretation of the rule and that a bank might want to contact their primary regulator as they would be the ones enforcing the rule.

The biggest thing keeping me from drinking the cool aide is that the whole purpose of HMDA is to help show whether lenders are serving the housing needs of their communities. In applying this purpose, footnote 82 does not work as that example has nothing to do with the housing needs but relates to commercial structure needs.

So, my thought is that each bank will need to pick an approach/camp and stick with it. If this is a situation that comes up regularly, it may be worth a call to a regulator as they will be the ones to evaluate the bank.

FWIW, I too haven't seen anyone get cited for the "forward" approach in the past. That said, it is discrepancies in the new rules like footnote 82 could open opportunities for criticism with some examiners.

All,

I had not looked at this thread in a while because I assumed it was dead, lo and behold much more activity! Cool!

I basically went through the exact same steps that @Adam did. I was finally able to have an hour long discussion with Mr. Ponty at the CFPB. He stated the same thing as the gentleman that replied to @Adam. There is a "dwelling" at the time of purchase and it should be reportable. We went through the demolish and rebuild scenario, as well as the convert to a daycare facility. He did seem to indicate there is consideration for the way the loan is structured, such that if you had a "convert" or "demolish and construct" only loan that is temporary and then will be taken out by a perm loan, then you would not report the initial loan, because it is temporary, and then, in the case of the convert to a daycare facility, you would not report the perm either because it is not a dwelling at that time. Seems like you would already have to own the structure in this scenario.

He also talked about how he felt there had been a "paradigm" shift as @David called it, in that prior to 2018, HMDA was very much purpose driven. What is the purpose of the funds? He said that the 2018 rules shifted to more of an understanding of is it a covered transaction, implying more of a basis that it is what the circumstances are at the time of the transaction. This aligns with what Mr. Devlen and his band of merry men stated to @Adam.

@David - Like I said, I'm not afraid to buck conventional wisdom if my research leads me to a certain conclusion.

@Adam - Great find in the Preamble for the convert to a professional office. Also, thank you for going down the same path I traveled, lol.

All i can say is that i won't be changing my approach on this.....a structure that isn't used as someone's residence doesn't meet the definition of a dwelling IMO (i see no way it can be seen as a "residential structure"), so they can call an about-to-be razed structure a "dwelling" all day long, but IMO, it still isn't.

But, now EVERYBODY is telling you that you are wrong, lol . . .

I respect you sticking to your guns, as I stuck to mine. Take it for what it is, but this does seem to be the stance the CFPB is taking on the issue, as we have two separate and distinct phone calls with the same reply, and in Mr. Deven's case, he consulted with several other legal staff on the issue.

Who is EVERYBODY? You and some guy from the CFPB? ETA: lol

My point is: if they want to take this stance, then they have problems with their regulation and its definitions. They need to go into the regulation and fix their definition of "dwelling" and "residential structure". If somebody at the CFPB suddenly started saying that the purchase of Tonka trucks was a reportable purchase, i'd need a bit more than that, as Tonka trucks aren't residential structures or dwellings.

LOLOL. Adam seems to be with me now and the other one guy from the CFPB and his band of merry men.

Well, jump on that bandwagon and report them that way then. Until they change the definition of "residence" and "residential", i'll stick with what the regulation actually says....i see no gray. Just like i don't report Tonka truck purchases, i won't be reporting purchases of structures that nobody lives in.

I'll feel safe not referencing "the other one guy from the CFPB". LOL

FWIW, I'm on Russ's side. If I have a purpose and that purpose is to change the structure to a [haha] Tonka truck playground...I'm not reporting it. It's purpose is NOT a dwelling any longer.

You guys are cracking me up with this thread. ;-)

FWIW, I haven't fully drank the Cool Aide yet on this, but I think footnote 82 gives JPC's camp some foundation to stand on.

Like many of the finer points of HMDA, this seems to be a gray area with two camps. That said, I really doubt many of the field examiners will have a clue about the two different camps or even footnote 82. ;-)