Need some help.

What is your definition of a construction permanent loan?

1. Construction loan with a commitment to make the permanent loan. (2 separate closings.)
a. Construction loan for X months.
b. Construction loan rolled into permanent financing.
2. Construction phase and permanent phase done in one closing.

At the present time our “construction permanent loans” are done under #1. Therefore, I contend that our “construction phase” is temporary financing and we do not need to report it on our LAR until we actually did the permanent financing. My reasoning is that the borrower could get more favorable terms else where during the construction phase, therefore taking their permanent financing there.

However, my superior feels we should be reporting the loan, as a purchase, once we close the construction phase. His reasoning is that we know we are going to do the permanent financing at the offset.

Here’s how I think it should be:

· The construction phase is not reportable (temporary financing to be liquidated from another re-payment source - in this case another loan commitment and I contend that our commitment to do the permanent financing is no different than if we had a commitment from another institution to take out the construction loan.)
· Permanent loan would be reported as a purchase when the permanent financing is consummated.
· If the permanent loan does not close, due to borrower going else where, we would report it as “approved not accepted”, unless the borrower specifically withdrew the loan request, then we would report it as “withdrawn”.

Refer to HMDA Reporting GIR Appendix D #5 page D-7.

I contacted HMDA Help and they referred me to the above without giving me an answer. I feel it supports my position.

Your thoughts and insight would be appreciated.

Thanks,
Dan

My understanding is the same as yours - don't include it on the LAR unless you get the permanent laon.

Your construction only (temporary phase without permanent in one) is NOT reported. If you provide a construction & permanent in one (1 loan that has the loan amount ammortized for X years), then this would be reported.

I think you have it right.

I was of the understanding that, for the construction loan to be considered "construction-permanent", we needed to make a written commitment to the customer. Since we don't do that, we call the construction loans "temporary" and don't put them on the LAR. When construction is complete, and the customer comes back for an amortizing loan, THEN we put it on the LAR.

Whether this is right or wrong, at least we are consistant!

Thank your for your insigght.

I learned at a seminar that the word "temporary" does not necessarily refer to term. He told us to consider how the construction loan will be paid off. If paid off by another lender or paid off in cash by the borrower (from the sale of another home, etc) then it is temporary and should not be recorded on the Lar. He remarked that a 90 day note is not temporary, it is short term.

Yes, I agree. That is why I am considering our "construction phase" to be temporary financing because it is being paid off by another loan, in our case the permanent mortgage.

May I ask another HMDA question regarding construction loans. When paying off a construction loan with a permanent loan, is the purpose a refinance or purchase?

Thanks!!!

It is reported as a purchase. This is a quote from an email received from the HMDA help line. "As long as the loan is considered "temporary financing" then it is note HMDA reportable. Once the not is converted from temporary to permanent then you report it. To report the loan as a refiancing the original obligation would have to be rplaced with a new oboligation. If the existing obligation is only renewed, modified, extended or consolidated the transaction is not refinancing for the purpose of HMDA (pp D-1 section 1(c) 2 of the Getting it Right Guide). When you convert the temporary financing to permanent you would report it as a home purchase loan."

I honestly can type better than I did in my previous post.

Dan,

If you look on any post you've made, you'll see that the Edit button is there for you to make changes to your posts only. Being a screwy typist myself, it helps a lot!

Thanks, being a new poster, I didn't notice the edit button.