I am no HMDA expert, but I am reviewing our LAR for 2022 and noted some inconsistencies with (8) Occupancy Code 3 (Investment) and (48) business or Commercial Purpose. We use Encompass, so I need to find out more about what drives the field.

However, I would like to know if (8) Occupancy Code 3 should the Business or Commercial Purpose Code be 1? In other words, if the property is investment should we consider business/commercial purpose.

In other words, if the property is investment should we consider business/commercial purpose.

A consumer purpose loan could be secured by commercial, investment or rental property. The collateral does not dictate the loan's purpose.

Let me add that these are all investment properties to be rented.

You still have to determine if the loan's purpose is business or consumer. Review 1026.3(a) and its Official Interpretations relating to owner and non-owner occupied rental property.

None are owner occupied.

Dan, thanks for the response. I just noticed that you are provided some information above that I didn’t see because I’m looking at this on my phone. These are all mortgage loans. We would not have a mortgage loan secured by commercial property handled on the residential side.

None are owner occupied.

I borrower $75,000 to purchase a new truck for my personal use and secure the loan with my non-owner occupied rental property. That is a consumer purpose loan.

My point is you can't automatically assume Code 1 is applicable simply because the loan is secured by rental property.

I thought I commented a couple hours back.

Dan, I agree with you. However, we are in an examination right now and the examiner is stating that I reported a non-reportable loan. He is interpreting the regulation to read, that all NOO are considered Commercial loans and are not reportable unless it is a purchase, a refi, or home improvement. My loan in question, is NOO, Equity loan, which the funds are to be used "To pay off personal debt" which is documented on the Statement of Purpose of Cash-out we require to be submitted. Therefore, he is saying, the loan is a business purpose loan due to the occupancy even though we have documentation stating otherwise.

Not the best "finding" when I am almost ready to report our 2022 data. He provided from the CFPB the "Is the transaction excluded by its purpose?" chart.

If you have run across this please let me know. And so, if you have something to share it would be appreciated.

What rock did that examiner roll out from behind?

From the exemptions listed in 1003.3

(10) A closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p);

So your examiner thinks that a loan for funds to go to Hawaii on vacation secured by my non-owner occupied rent home is not HMDA reportable? He's showing no understanding of Reg. Z or HMDA.

From Reg. Z:

(a) Business, commercial, agricultural, or organizational credit. (1) An extension of credit primarily for a business, commercial or agricultural purpose.

As has been said a million times, purpose not collateral drives coverage under Reg. Z.

WAB - I haven't seen the "Is the transaction excluded by its purpose?" chart from the CFPB but I do have Consumer Purpose Decision Tree chart I obtained from Key Compliance Training.

https://www.keycomplianceservices.com/

he is saying, the loan is a business purpose loan due to the occupancy even though we have documentation stating otherwise

Push this up the ladder to this examiner's supervisor. They are 100% incorrect in their opinion.

(38) Whether the covered loan is, or the application is for a covered loan that will be, made primarily for a business or commercial purpose.

Official Interpretation
Paragraph 4(a)(38)
1. Primary purpose. Except for partially exempt transactions under § 1003.3(d), § 1003.4(a)(38) requires a financial institution to identify whether the covered loan is, or the application is for a covered loan that will be, made primarily for a business or commercial purpose. See comment 3(c)(10)-2 for a discussion of how to determine the primary purpose of the transaction and the standard applicable to financial institution's determination of the primary purpose of the transaction. See comments 3(c)(10)-3 and -4 for examples of excluded and reportable business- or commercial-purpose transactions.

1003.3(c)(10)
2. Primary purpose. An institution must determine in each case if a closed-end mortgage loan or an open-end line of credit primarily is for a business or commercial purpose. If a closed-end mortgage loan or an open-end line of credit is deemed to be primarily for a business, commercial, or organizational purpose under Regulation Z, 12 CFR 1026.3(a) and its related commentary, then the loan or line of credit also is deemed to be primarily for a business or commercial purpose under § 1003.3(c)(10).

I believe the "'Is the transaction excluded by its purpose?' chart" refers to page 2 of the HMDA transactional coverage guide (https://files.consumerfinance.gov/f/documents/cfpb_2022-hmda-transactional-coverage.pdf), which just says "Is the transaction otherwise made primarily for a business or commercial purpose? § 1003.3(c)(10)." The answer to that question in this instance is "No," so you go through the rest of the steps to come out with the fact that, as everyone has already mentioned, this is a reportable transaction.

Yes, the examiner lists page 234 of the 2022 HMDA getting it Right as the flow chart. And also states Section 1003.4(a)(6) makes the loan a commercial loan so therefore, under the chart, this is not reportable as it is not a purchase, refi or home improvement.
However, 1003.4(a)(6) only discusses on how to code occupancy and is specific to how to code investment "property". No where can I find the tie in that investment "property" means commercial or business "purpose".
We spoke today as the HMDA.CRA portion is done and he is going to keep his finding for the report and we agree to disagree on the topic at this point. The finding doesn't trigger additional review or resubmittal. With me ready to file tomorrow, this puts me in a bind for my 2022 filing. I reviewed my LAR and again it doesn't affect many of my loans but like many of you I am sure, I take my LAR personal, I know its a sick disease I have.
So I will discuss further with executive management and file accordingly.
Just as an FYI, something makes me think he saw my comments so if you comment please be kind as besides this hiccup he was great to work with.

I am sorry, as much as I would like to be nice, the examiner is an idiot. 1003.4(a)(6) is the definition of an investment property. That has nothing to do with determining whether or not the loan is business purpose and thus reportable. That is clearly defined in 1003.3(c)(10):

Official Interpretation
Paragraph 3(c)(10)
1. General. Section 1003.3(c)(10) provides a special rule for reporting a closed-end mortgage loan or an open-end line of credit that is or will be made primarily for a business or commercial purpose. If an institution determines that a closed-end mortgage loan or an open-end line of credit primarily is for a business or commercial purpose, then the loan or line of credit is a covered loan only if it is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p) and no other exclusion applies. Section 1003.3(c)(10) does not categorically exclude all business- or commercial-purpose loans and lines of credit from coverage.

2. Primary purpose. An institution must determine in each case if a closed-end mortgage loan or an open-end line of credit primarily is for a business or commercial purpose. If a closed-end mortgage loan or an open-end line of credit is deemed to be primarily for a business, commercial, or organizational purpose under Regulation Z, 12 CFR 1026.3(a) and its related commentary, then the loan or line of credit also is deemed to be primarily for a business or commercial purpose under § 1003.3(c)(10).

I would not lose a wink of sleep over reporting loans of these sorts as you have been. I would also be visiting with the head of your field office on the recommendation made by this examiner, as like you said, 1) you totally disagree with the recommendation, 2), it is clearly an absolutely wrong recommendation, 3) exam teams are no longer supposed to making these sort of finding without support if they believe you are violating a regulation and 4) you want to see a written explanation that supports what this examiner is saying from the field office.

This means you have a HMDA violation in your exam report. Next year if they find something that is an actual violation, it will result in the repeat finding. If you get a repeat finding (it does not have to be the same exact one) then that starts triggering C&D orders and automatic fines and penalties. A bank can no longer afford to allow erroneous finding to appear in a report. I would not be afraid to push this all the way to DC and I would encourage your senior management and board to do the same.

You may think that it is not worth the efforts but think of the damage this examiner will continue to do down the line with other banks. This has to be stopped now. If he is doing this to one bank, he is likely doing it to all and it might not stop at this one lousy interpretation.

I'm with Randy. He's simply wrong. "And also states 1003.4(a)(6) makes the loan a commercial loan."

His problems begin there.

What Randy said.

I looked at the chart in the GIR and for the life of me I cannot see where that chart makes the loan a business purpose loan simply based on the the collateral being business/commercial property.

I agree with you all you that he is wrong on his interpretation. I will update the post when the final decision is made, at this time all I can do is put my argument together. It is a finding as of right now but luckily doesn't require additional testing or resubmission. We aren't the biggest of reporters so it didn't affect us that much. Delayed my reporting to last minute now even though it was ready Monday but there is always tomorrow. I hate waiting to last minute.

If anyone else runs across this during their exam, please chime in.

Thanks again for your opinions.

Curious if you got a good resolution to this from your EIC or someone else up the chain?