Purchase property - restaurant with a dwelling. Funds for the loan were for the purchase. Customers intent is to use their own funds to subdivide the residential property and sell and make improvements to the restaurant for their daughter to run and eventually sell to their her. No income generation from the property was used to qualify customer. They had sufficient other income available to service the debt. We used the purchase property along with two other residential rental properties they own for collateral. I know the rules changed in 2018, but what I am reading is we can still do a case by case determination except there is an additional step if it is for improvement of the property. What is you take? Is this HMDA reportable?

How does the square footage (restaurant portion vs. residential portion) break out? I think that's what i'd be looking at on this one.

Square footage is one way to look at it but there are other factors (income per square foot, borrower's intent, etc.). Comment #4 to §1003.2(f) #4 states "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 the bottom line is the loan officer needs to document if this is a dwelling or a restaurant (mutually exclusive). Pick one, explain why and go with it.

My opinion from what you've told us is this is a restaurant. Why? Because you said they bought this property because it has a restaurant. It doesn't sound like they bought a house that just happened to have a restaurant. It sounds like they bought a restaurant that happens to have a house with it.

We have a Refinance loan in process, this is a mixed use property as the bottom is a flower shop and there are two apartments above, the owner lives in one of the units full time and will be renting out the other one. The purpose of the loan is to refinance an existing loan on the property along with getting cash out to complete home improvements for the 2nd apartment. The only source of income is from the flower shop.

I am getting myself confused on if this is reportable due to when looking at a the home improvement section of the Getting It Right Guide it says on I-7 that for a mixed use property if the main source of proceeds are primarily to improve the residential portion of the property then it would be.

Should i be determining the Main purpose of the property an look at square footage and income before i look into the Home Improvement section?

If the primary purpose of the loan proceeds is to do improvements to the residential portion of the property then the loan is a home improvement loan regardless.

We use square footage to determine whether the purpose is mostly residential or not. The reg states you can use "any reasonable..." so that is what we chose.

We use square footage to determine whether the purpose is mostly residential or not.

I'm not sure if you were addressing my comment but if you have a mixed use property and the purpose of the loan is to do improvements to the residential portion of the mixed use property then the loan is reported as a home improvement loan regardless if the property is not considered residential by the income or square footage tests.

4. Mixed-use property. A closed-end mortgage loan or an open-end line of credit to improve a
multifamily dwelling used for residential and commercial purposes (for example, a building
containing apartment units and retail space), or the real property on which such a dwelling is
located, is a home improvement loan if the loan's proceeds are used either to improve the entire
property (for example, to replace the heating system), or if the proceeds are used primarily to
improve the residential portion of the property. An institution may use any reasonable standard
to determine the primary use of the loan proceeds. An institution may select the standard to
apply on a case-by-case basis. See comment 3(c)(10)-3.ii for guidance on loans to improve
primarily the commercial portion of a dwelling other than a multifamily dwelling.

So by square footage you may not have a dwelling under the HMDA mixed use test but if the loan proceeds are being used to improve the residential portion (apartment) then the loan is a home improvement loan regardless of the apartment's square footage.

Is that true? I don't think I've run into it, but I'd lean not reportable if it's not a dwelling. It's got to be a closed-end mortgage loan or open-end line of credit to get pulled into that comment, which requires it to be secured by a dwelling, right? I read that as HI v. Other purpose.

To me it is pretty clear - regardless if the mixed use property is considered a dwelling if the loan is to improve the entire property or the residential portion of the property it is a reportable home improvement loan. The above cite even refers you to comment 3(c)(10-3.ii for guidance on a loan primarily to improve the commercial portion of the building other than a multifamily dwelling.

3(c)10 addresses loans primarily for business purposes are exempt other than those for a home purchase, home improvement or refinancing. So a loan secured by a mixed use property is most likely going to be for a business use....but if that "business" use involves improvement to the entire mixed use property or the residential portion of the mixed use property that "business" purpose loan is considered for home improvement.

As I see it if the loan is to purchase a mixed use property that is determined not to be a dwelling by one of the allowable tests then the loan is not reportable. The same holds true for a refinancing.

However if the loan is to improve the property then if the proceeds are to improve only the commercial use of the building it is exempt but if the proceeds are to be used to improve the entire building or the residential portion of the building then that brings it into the home improvement category.

Can someone please clarify? If it's a refinance, why it would be home improvement instead? From the 2022 HMDA Guide, it states that a Home Improvement and Refinancing purpose is reportable as refinancing. I'm guessing I'm misunderstanding something here.

If the property is not a dwelling under the square footage or income test then the loan is not dwelling secured so it would not be a refinancing or a home purchase, whichever the case may be. But the above regulatory cite carves out the "exception", for lack of a better term, if the purpose of the loan is to do improvements to the entire property or the residential portion of the property it would be a home improvement loan.

Ok, that was what I was missing. I didn't see where the mixed-use test had already been done and found to be primarily for business purpose. Thanks!

Pretty clear?!?!?! Not in HMDA I say. Here's my logic. The HI citation starts off with saying it applies to "a closed end mortgage loan or an open-end line of credit," which are defined terms requiring the transaction to be dwelling secured. If the terms weren't defined I would agree with you.

4. Mixed-use property. A closed-end mortgage loan or an open-end line of credit[b] to improve a
multifamily dwelling used for residential and commercial purposes (for example, a building
containing apartment units and retail space), or the real property on which such a dwelling is
located, is a home improvement loan if the loan's proceeds are used either to improve the entire
property (for example, to replace the heating system), or if the proceeds are used primarily to
improve the residential portion of the property. An institution may use any reasonable standard
to determine the primary use of the loan proceeds. An institution may select the standard to
apply on a case-by-case basis. See comment 3(c)(10)-3.ii for guidance on loans to improve
primarily the commercial portion of a dwelling other than a multifamily dwelling.

(d) Closed-end mortgage loan means an extension of credit [b]that is secured by a lien on a dwelling and that is not an open-end line of credit under paragraph (o) of this section.

(o) Open-end line of credit means an extension of credit that:

(1) Is secured by a lien on a dwelling; [...]

I've always believed step 1 was determining if it was dwelling secured. If not, your HMDA journey was complete. Also not sure why they would further muddy mixed-use property with this exception. Seems unnecessarily cruel. Though that's probably a point in favor of your argument.