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#2254491 - 05/27/21 02:56 PM Farm with Primary - Collect GMI for ECOA?
Laurlee Offline
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Joined: Sep 2015
Posts: 20
I tried searching this -- but could not find this question addressed.

I have a customer purchasing a Farm with a Primary Residence (Homestead). This will be excluded from HMDA reporting since the property is Ag Purpose (not a dwelling).

But do I still collect GMI under ECOA rules since it is partly for the purpose of purchase a principal residence? We did collect GMI, but now have deemed the file not HMDA reportable--so can I keep the GMI in file or need to document it was "collected inadvertently"?

a) Information to be requested. (1) A creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling, shall request as part of the application the following information regarding the applicant(s)....

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#2254572 - 05/27/21 08:58 PM Re: Farm with Primary - Collect GMI for ECOA? Laurlee
raitchjay Offline
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OK
I think this is a great question, and not one i've heard posed before. Based on the OSC to 1002.13, i would say that you're on to something, and that the argument could definitely be made that since the PRIMARY purpose of the loan was (or at least, could be argued to be) to purchase agricultural land, that the loan would be exempt from GMI/DI requirements.

5. Transactions not covered. The information-collection requirements of this section apply to applications for credit primarily for the purchase or refinancing of a dwelling that is or will become the applicant's principal residence. Therefore, applications for credit secured by the applicant's principal residence but made primarily for a purpose other than the purchase or refinancing of the principal residence (such as loans for home improvement and debt consolidation) are not subject to the information-collection requirements. An application for an open-end home equity line of credit is not subject to this section unless it is readily apparent to the creditor when the application is taken that the primary purpose of the line is for the purchase or refinancing of a principal dwelling.

And yes, i get that it uses "loans for home improvement and debt consolidation" as its examples of loans primarily for a different purpose (not purchase or refinance).....but i think the principle espoused there can be used to make the argument about primarily ag. purpose property too.

I'm open to other interpretations.
Last edited by raitchjay; 05/27/21 09:01 PM.
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#2254580 - 05/27/21 09:44 PM Re: Farm with Primary - Collect GMI for ECOA? Laurlee
raitchjay Offline
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OK
I just want to clarify why i think this is a great, yet tough question......to make the argument that the GMI requirements wouldn't apply, you'd have to argue NOT that the primary purpose of the loan wasn't to PURCHASE the property (it is).....but that the primary purpose of the loan wasn't to purchase the PRIMARY RESIDENCE, since the ag. portion of the property would (or could, if you buy the argument) override that purpose. So, the examples given in the OSC aren't a perfect fit....yet again, i think they would lend to that argument. Yes, the primary purpose of the loan was to purchase the PROPERTY....but no, the primary purpose of the loan was NOT to purchase the primary residence. And since this seems to be an argument one would make for Reg. Z or Reg. C and not Reg. B (which we all know isn't a consumer regulation).....it just adds to the intrigue....at least to me.
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#2254595 - 05/28/21 03:05 AM Re: Farm with Primary - Collect GMI for ECOA? raitchjay
Laurlee Offline
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Joined: Sep 2015
Posts: 20
Thank you for your considerate thoughts on this.

I think I will lean to removing the GMI for two reasons:

(1) I feel, with the new HMDA exemption for Ag Purpose, I have more farms with primary residence (especially refinances) in which we did not collect GMI. So I feel the one that I discovered is easier to cure than going through all of our other files to be sure we collected GMI for the primary residence; and

(2) I think I could argue that the purpose was "primarily" to purchase a farm--not a primary residence if it was challenged smile

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#2254598 - 05/28/21 11:47 AM Re: Farm with Primary - Collect GMI for ECOA? Laurlee
Adam Witmer Offline
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A couple of thoughts on this.

First, I agree that 1003.3(c)(9) of Reg C/HMDA automatically exempts a loan that is primarily for agricultural purposes.

From Reg C: "(9) A closed-end mortgage loan or open-end line of credit used primarily for agricultural purposes;" and from the commentary: "1. Loan or line of credit used primarily for agricultural purposes. Section 1003.3(c)(9) provides that an institution does not report a closed-end mortgage loan or an open-end line of credit used primarily for agricultural purposes. A loan or line of credit is used primarily for agricultural purposes if its funds will be used primarily for agricultural purposes, or if the loan or line of credit is secured by a dwelling that is located on real property that is used primarily for agricultural purposes (e.g., a farm). An institution may refer to comment 3(a)-8 in the official interpretations of Regulation Z, 12 CFR part 1026, supplement I, for guidance on what is an agricultural purpose. An institution may use any reasonable standard to determine the primary use of the property. An institution may select the standard to apply on a case-by-case basis.

So, is the loan primarily for agricultural purposes? If so, DI under Reg C was not supposed to be collected on this application and it will not be reported for HMDA.

Now, you bring up a good question on Reg B and raitchjay has provided some good things to consider. For me, here is the thought process I would go through. First, is the dwelling going to be occupied? If not, you can automatically rule our Regulation B from the discussion:

"(1) A creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling,"

Now, if it is to be owner occupied as a primary residence (which you appear to say it would be), then you will have to determine if the loan was "primarily" for the purchase of the dwelling. To me, it very will could be as this is going to be their home, but I guess there could be an argument that the primary reason for the loan was to purchase ag. Here is an example that comes to mind: if the applicant is downsizing primary residences and actually had enough cash from the sale of their prior house to cover the new primary residence, but didn't have near enough funds to cover the farm. Either way, you will want to document your file as to why or why not.

Finally, it is important to keep in mind that "removing the GMI" doesn't make a violation (IF there was/is one) go away. For any violation of GMI/DI, I would want to know if there was a misunderstanding from the applicant as to the purpose of the loan, or did the lender just not understand when GMI/DI was required? If the application originally appeared to require DI, but something changed later, then I would note this in the file and move on. If, however, it wasn't required from the very beginning, these types of violations should be used as a training opportunity as you would have a violation for collection DI/GMI when not required.
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All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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