We are currently being reviewed for HMDA and I wanted to check my understanding of how to apply HMDA to construction/perm loans.

We make construction to Perm loans. We do not make land loans and we do not make construction only loans. We have always added all applications and originations on the LAR regardless of the action taken.

We are being told if it doesn't lead to an origination then a construction to perm loan is not reportable as there is no dwelling constructed.

Here is my understanding of HMDA

You need to determine if you have a covered transaction-Closed end (we do not make enough HELOC's to be reportable), secured or TO BE secured by a lien on a dwelling, not excluded by any reason in 1003.3(c)

Construction to Permanent is a purchase as defined under 1003.2(j) and not excluded under 1003.3(c)(3)-1.iv

We have determined it is a covered transaction and is a purchase as it will automatically convert to permanent financing and our lien will be on the dwelling. The loan is not originated, either we deny it, the customer withdrawals it, or we approve it and the customer does not move forward with the loan.

We have been putting those on our HMDA LAR as we have already determined it to be a covered transaction. The reviewer is stating since no dwelling is ever constructed you have no dwelling only bare land and it becomes not HMDA reportable.

The scenario in question-The loan was approved as a construction/perm financing and ultimately closed ANA. The applicant never built on the land. It is still bare land. The reviewer indicated as no dwelling was built and it is still bare land it is not reportable.

But I thought it was intent that mattered, "proposed" use of the funds and "proposed lien". If the loan would have been originated the lien would have been on a dwelling and not on bare land.

You need to find a new HMDA reviewer as they know not of what they speak.


Official Interpretation
2(j) Home Purchase Loan


3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.

If only I could this person is outside of our control. May be within a government agencies control.......

I also have this as a citation--1003.3(c)(2)-1 that unimproved land can be deemed to be secured by a dwelling if the FI knows, based on information that it receives from the applicant or borrower at the time the applicant is received or the credit decision is made, that the proceeds of that loan or credit line will be used within two years after closing or account opening to construction a dwelling

Wish me luck trying to use the regulation to uphold why I include construction-perm on the LAR.

I think your question to resolve before going eye-to-eye with the examiner or auditor is whether you can show that you had information from the applicant by the time the credit decision is made that some part of the loan proceeds will be used within 2 years to construct a dwelling. If that is the case, you should be able to use Comment 3(c)(2)-1 to convince the reviewer that it's a HMDA-reportable loan.

All good points John.

There was a construction contract in the file showing the construction would be starting along with a date that the construction needed to be completed. I don't have the file but I believe it was a 6 month construction period from the origination of the loan. This would be reflected in the contract and on our approval documents.

I will review the file with the reviewer.

I think you have the documentation you need and the citation to the correct paragraph of the HMDA Official Interpretations to show the reviewer the right path. Let us know how you make out.