A municipality purchases farm real estate and water shares at a Farm Credit Auction in order to secure the water rights. 300 acres that include water shares, a dwelling, and several outbuildings. They are now refinancing that loan from another lender to us to change the loan from a variable rate to a fixed rate. The original loan was dwelling secured, and the new one will be as well. I believe the original and new loan would both be considered Ag purpose, so it's not HMDA reportable. However, the call report coding would indicate a loan/lease to a municipality. If this was considered a commercial purpose loan, then it would be HMDA reportable. Has anyone ran into this before? How would you handle it?

I believe the original and new loan would both be considered Ag purpose,

Will the property continue to be used for agricultural purposes? The primary use of the property will determine if it is agricultural, not the acreage involved.

You may want to consult your bank counsel. Is some states, public entities like municipalities may not legally pledge real estate (a publicly held asset) as collateral for a loan. The fact that another bank did so is not a defense in this case. Instead, most public lending in PA at least is done on the basis of a general obligation note, in parity with other G.O. note creditors. Other states may differ, which is why you want direction from counsel. They could also weigh in on the HMDA issue.