Would someone explain to me how purpose enters in determining whether a loan is HMDA reportable or not? I'm having difficulty with some of our commercial loans. Often times customers will take second (or even third) mortgages on a residence (either their primary or rental property) but the money is not used for anything having to do with any residence, i.e. working capital for a business. This is not reportable, am I correct? Is the same true if they are refinancing a loan secured by a residence but, again, using the money for working capital. I've looked through my Guide to HMDA--Getting It Right, but must be missing it. Thank you in advance.

If they are refinancing a loan secured by a dwelling, and the new loan will also be secured by a dwelling, then it is reportable...purpose does not matter in that case. In your first example, when they are just taking a second mortgage to finance working capital, you are correct, it is not reportable. The funds have to be to purchase, improve or refinance a dwelling.

What will help you the most to know when a loan's purpose is reportable under HMDA is to fully understand the Reg. C definitions for a home purchase, home improvement and refinancing. Then once you determine the purpose is subject to reporting you have to look to see if in falls within one of the exemptions such as temporary financing or mixed-use propriety.

Home purchase - ANY loan made for the purpose of purchasing a dwelling AND is secured by a dwelling.

Home Improvement - ANY dwelling secured loan where a portion of the proceeds will be used for home improvement. Any non-dwelling secured loan that is for home improvement AND classified as a home improvement loan by the financial institution.

Refinancing - ANY dwelling secured loan that satisfies and replaces another dwelling secured loan.

Note: for home purchases, home improvements and refinancing the dwelling securing the loan DOES NOT have to be the dwelling being purchased, improved or refinanced.