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#2274635 - 08/24/22 03:03 PM HMDA Reportable or Bridge Loan?
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Joined: Oct 2012
Posts: 93
San Antonio, TX
The bank has entered into a new relationship with a borrower's 3 related entities. They are using 12-18 month interest-only loans to acquire properties with existing rental homes. These loans are specifically used to wait until lease expiration and create construction plans and complete any related steps. So far, I have observed these loans are paid off within a few months or less by construction-only loans where they completely demolish the existing improvement and build high dollar duplexes to sell each unit separately. Would the 12-18 month interest-only loans be considered "bridge loans," or is there a specific reason they are considered HMDA reportable?

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#2274637 - 08/24/22 03:18 PM Re: HMDA Reportable or Bridge Loan? Help! Compliance
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,951
Bloomington, IN
IMHO these loans do not meet the definition of temporary financing and would not be exempt. The construction only loan is not replacing the existing loan with permanent financing.

Official Interpretation
Paragraph 3(c)(3)
1. Temporary financing. Section 1003.3(c)(3) provides that closed-end mortgage loans or open-end lines of credit obtained for temporary financing are excluded transactions. A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. For example:
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2274652 - 08/24/22 05:47 PM Re: HMDA Reportable or Bridge Loan? Dan Persfull
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San Antonio, TX
Thanks, Dan...what do you believe concerning the reportability of the 2nd loans paying off these initial acquisition loans to hold until lease expiration? They will pay off the initial loans, and the initial step will be to completely demolish the existing structure, so the transaction/process will include a period of no dwelling (just the lot), and the credit decision is based on the future dwelling being built that will be sold (Spec/Contract). My inclination is to interpret this as a construction-only loan by a home builder, but there are those that are concerned by the perceived refinance of the pre-existing dwelling's debt obligation. Note the second loans are 18 months and interest-only.

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#2274697 - 08/25/22 02:52 PM Re: HMDA Reportable or Bridge Loan? Help! Compliance
Dan Persfull Offline
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Dan Persfull
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Posts: 46,951
Bloomington, IN
If the purpose of the 2nd loan is for a builder to construct a home for sale then I would opine that loan would be exempt under the temporary loan exemption - see OI 1003.3(c)(3) - 2. However if none of the loan proceeds will be used for that construction but only to pay off the existing loan then IMO it would lose its exemption and be reportable as a refinance. The fact the dwelling will be razed is not relevant, the loan was dwelling secured at consummation.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2274727 - 08/25/22 05:58 PM Re: HMDA Reportable or Bridge Loan? Dan Persfull
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San Antonio, TX
The initial disbursement of these 18 month interest only loans would be to pay off (refi) the existing lien on the property that contains the former structure originally acquired by the 1st loan. The remaining disbursements will demolish that existing structure and build a new luxury duplex (each side to be sold separately). If it weren't for the need to refinance a property that contains an existing structure at the time the loan originated, I would say any such loans would be construction-only and not HMDA reportable. However, this component at the beginning, makes some feel that the transaction loses it's exemption. Are you saying otherwise? Thanks, Dan...

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#2274801 - 08/26/22 03:58 PM Re: HMDA Reportable or Bridge Loan? Help! Compliance
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,951
Bloomington, IN
1003.3(c) excludes as temporary financing:

2. Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

If the loan is paying off an existing dwelling secured loan how does that cause the transaction to lose its temporary financing exemption?

A temporary loan is exempt regardless of its purpose.
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The opinions expressed are mine and they are not to be taken as legal advice.

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