Hello,

Our Commercial Loan Department recently decided to change how construction loans are structured and I am struggling with the HMDA reporting. The borrower is approved for both the construction loan and permanent financing (12-month construction period & 168-month perm. period) at the time of origination; however, the note is only for the 12-month construction period. The permanent financing is put in place via a loan modification at the end of the construction term. Does this scenario meet the definition of temporary financing if the permanent financing is accomplished by a modification rather than a new note? Should we report these loans for HMDA? Thank you.

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:

iv. Lender A extends credit to finance construction of a dwelling. The loan automatically will convert to permanent financing extended to the same borrower with Lender A once the construction phase is complete. Under § 1003.3(c)(3), the loan is not designed to be replaced by separate permanent financing extended to the same borrower, and therefore the temporary financing exclusion does not apply. See also comment 2(j)-3.