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#2268947 - 04/12/22 02:50 PM 12 Month Refi/HI
referwithcaution Offline
Junior Member
Joined: Feb 2022
Posts: 25
I am a new HMDA/CRA Compliance Specialist, and have a question that is likely a softball to the majority of users on here. I recently began performing CRA duties in conjunction with HMDA reporting at a large bank. Every morning I receive a report of all HMDA applications, as well as a separate CRA report detailing all commercial loan activity on that day. Having less than one year in Banking as a whole, I want to ensure that I do not blur any lines but it is sometimes challenging. Here is a scenario that I find "challenging".

With my CRA report, I received a commercial loan application in which the purpose is to refi/cash out to pay off an existing loan on a dwelling. Approximately 19% of funds will be allocated for renovations. The note is 12 months, and secured by the investment property that will be improved.

I initially moved this application to my HMDA side of things and intended to code it as Home Improvement. However would the 12 month term make this short-term financing?

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#2268951 - 04/12/22 03:50 PM Re: 12 Month Refi/HI referwithcaution
raitchjay Offline
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Joined: Oct 2009
Posts: 8,773
OK
It depends...what are the plans for repayment and is long term financing anticipated? HMDA defines an exempt temporary loan as one that will be replaced by a loan with a longer term (permanent financing ).So if the plan for repayment is the sale of the home, then the loan would be reportable. If the plan is to perm it out on maturity, then it would be exempt as temporary financing.
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#2268954 - 04/12/22 04:08 PM Re: 12 Month Refi/HI referwithcaution
compgal21 Offline
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Joined: Jan 2021
Posts: 40
Also - depending on if the loan is reportable based on being exempt if this is a short term/temp, I would not code this as home improvement since the primary purpose of the loan is refinancing.


here is a little guidance I use for HMDA and Temporary Financing
https://www.bankerscompliance.com/wp-content/uploads/2016/09/HMDA-and-TEMPORARY-FINANCING.pdf
Last edited by compgal21; 04/12/22 04:10 PM.
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#2268963 - 04/12/22 05:14 PM Re: 12 Month Refi/HI raitchjay
referwithcaution Offline
Junior Member
Joined: Feb 2022
Posts: 25
The repayment sources will be guarantor cash flow and sale of property. I believe that I can now recall in prior training the temporary status coinciding with later permanent financing.

Thank you for the quick feedback!

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#2268964 - 04/12/22 05:18 PM Re: 12 Month Refi/HI compgal21
referwithcaution Offline
Junior Member
Joined: Feb 2022
Posts: 25
The pdf that you linked is outstanding, thank you! I see the answer to my original question directly in it.

"A good example of a reportable, short term loan is home improvement financing for 1 year. If the loan is repaid over 12 monthly installments, this loan is not temporary and should be reported".

This may be my first cash-out refi/hi combination. I was told that home improvement takes precedence over refinancing. If that is not the case, I would not be entirely surprised.

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#2268967 - 04/12/22 05:29 PM Re: 12 Month Refi/HI referwithcaution
Inherent_Risk Offline
Gold Star
Joined: Jan 2017
Posts: 375
Purchase -> Refi -> HI -> Other

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.

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#2268970 - 04/12/22 05:34 PM Re: 12 Month Refi/HI referwithcaution
compgal21 Offline
Junior Member
Joined: Jan 2021
Posts: 40
I hate it when they get tricky and I really have to sit down and think about it! Thankful we have some support and the ability to interact with our peers!

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#2268972 - 04/12/22 05:43 PM Re: 12 Month Refi/HI referwithcaution
compgal21 Offline
Junior Member
Joined: Jan 2021
Posts: 40
When it comes to mixed use loans, do not report based on the majority rather if any of proceeds are for a higher tier - report the higher tiered purpose. In this case, the higher tiered purpose is a refinance.

The order of hierarchy goes:

Home purchase
Refinance
Home Improvement
Other

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#2269035 - 04/13/22 04:38 PM Re: 12 Month Refi/HI referwithcaution
Truffle Royale Offline

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Joined: Jul 2003
Posts: 17,351
You will never have a home refi unless that's ALL the money is for.
This is a 180 switch from the way it used to be when you reported HI if any of the funds were to be used for home improvement.
Now, once there's a loan being paid off, it's a refi...period.

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#2269038 - 04/13/22 05:21 PM Re: 12 Month Refi/HI referwithcaution
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,858
Bloomington, IN
You will never have a home refi unless that's ALL the money is for.

TR, the way that statement is worded makes it incorrect. Did you mean home improvement?
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#2269244 - 04/18/22 03:01 PM Re: 12 Month Refi/HI referwithcaution
referwithcaution Offline
Junior Member
Joined: Feb 2022
Posts: 25
Thank you everyone for your feedback. You will likely see more questions from me akin to HMDA softballs. This is an excellent resource.

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