We have a loan to pay off an existing loan $218,500 and additional funds for improvements (approximately $150,000) on primary residence.

This is 12 months interest only payments then it will be modified to in-house permanent financing.

Would this be HMDA since its temporary financing on the front end and modification at maturity?

thanks!

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.

Thanks -

This is a home improvement loan rather than construction. Does that come into play?

Also - it will not automatically convert at maturity. It will be done via a modification with a modification agreement.

Construction/home improvement, they are all the same. They are short-term multiple advance interest only loans. Your intention is to automatically convert the loan via a modification into permanent financing at maturity, is it not? In my mind, that does not make the loan temporary, as you are not contemplating replacing the loan with separate long term permanent financing. Modifications are not reportable, so you report the construction portion of the loan.

You are probably in Texas, aren't you.

Thanks Randy!

I've always been under the understanding you can only construct a dwelling once.

Not Texas - Razorbacks!

Well, "construction" in the examples in Regulation C are just that, examples or temporary loans. It really has nothing to do with building a dwelling once or twice.

FWIW I agree with Randy's analysis.

This is 12 months interest only payments then it will be modified to in-house permanent financing.

That loan structure is the permanent financing for the transaction therefore it is reportable.

You need to look to whether the loan meets the definition of temporary financing. A construction loan that will be paid off with other assets upon completion is not an exempt transaction under the temporary financing exemption.

Thanks Dan!