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#2252786 - 04/22/21 01:41 PM HMDA Reportable or Temporary financing
Somer Offline
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Joined: May 2013
Posts: 43
I have a loan to a developer who already owns a home, which he will razed and construct a new home for sale. I know it is not a purchase or a refinance, but hung up on HI or temporary financing as a construction loan to a developer to demolish existing home and rebuild to sale.
Please advise.

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#2252799 - 04/22/21 03:45 PM Re: HMDA Reportable or Temporary financing Somer
Adam Witmer Offline
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Joined: Sep 2010
Posts: 2,630
Great question and this has been a highly debated topic over the years. While not your exact situation, the CFPB gives us this FAQ:

"My financial institution originated a loan to a builder to construct a dwelling for sale. the proceeds of the loan will be used to buy a house, demolish it, and rebuild a house for sale immediately after closing. Is this transaction excluded from HMDA reporting?

No. In the scenario described, part of the loan will be used for purchasing a dwelling in addition to constructing a dwelling for sale. Therefore, the transaction described above is not excluded from HMDA and should be reported as a home purchase loan. A construction-only loan or line of credit is considered temporary financing and excluded from collection and reporting requirements under comment 3(c)(3)-2 if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. Comment 3(c)(3)-2 to Regulation C, 12 CFR ยง 1003.3(c)(3)."


You said this isn't a refi, so I assume there isn't an existing loan that is being paid off? If not, then I agree that this isn't a purchase and isn't a refi.

Now, is this temporary financing? To answer this, there are two possible scenarios and we probably need more info from you. First, if your loan is short term and the borrower plans to replace it later with permanent financing, it could be temporary financing and excluded from reporting. You didn't imply this, but I just wanted to point it out. Assuming that isn't the case, the other temporary financing option would be a loan "exclusively to construct a dwelling for sale."

Now, others may disagree, but I would say that since you have an existing dwelling at the time of your loan, the loan is not "exclusively to construct a dwelling for sale" and, therefore, would not be exempt as temporary financing (as found in comment 2 to 1003.3(c)(3))

Following the HMDA purpose waterfall, it would appear to be a home improvement loan for HMDA purposes as the loan appears to have the purpose, at least in part, to "improve a dwelling or the real property on which the dwelling is located."

For reference, here is a (really) messy thread that discusses this topic and outlines some arguments and points to consider: https://www.bankersonline.com/forum/ubbthreads.php/topics/2242264/4
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#2252803 - 04/22/21 05:13 PM Re: HMDA Reportable or Temporary financing Somer
Somer Offline
Junior Member
Joined: May 2013
Posts: 43
This loan was never originated. The Borrower was waiting for the permit process and decided to withdraw his application before the loan was underwritten. In the initial term letter, which is our application, the purpose states: Provide funding for the razing of an existing single-family home and construction of a new single family home for speculative resale. The term is 18 months.

Upon further conversation with the Loan Officer, I discovered that he did a site visit of the property, before the borrower withdrew his application and found that there was no house on the property at this time. It was an empty lot, the borrower had already razed the house. Now knowing this, does it make it temporary financing.

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#2252912 - 04/23/21 09:04 PM Re: HMDA Reportable or Temporary financing Somer
Somer Offline
Junior Member
Joined: May 2013
Posts: 43
Can someone weigh in on the last comment for me.

Thank You.

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#2252920 - 04/23/21 09:51 PM Re: HMDA Reportable or Temporary financing Somer
raitchjay Offline
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Joined: Oct 2009
Posts: 8,764
OK
If there's no home on the property and the loan application then reverted simply to an application to build a spec home, then it would be expressly exempt from HMDA reporting.

ETA: but i'm tired and my brain is fried and i didn't deeply delve into all the previous details....but again, if there's no home to raze, it sounds like a simple spec home construction loan which would not be reported.
Last edited by raitchjay; 04/23/21 09:54 PM.
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#2253140 - 04/28/21 07:42 PM Re: HMDA Reportable or Temporary financing Somer
Compliance NABW Offline
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Joined: Oct 2015
Posts: 1,616
Agree with Raitch. If no dwelling exists in connection with the application, then it sounds like a new build and sell . . . Spec Home exclusion.

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