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#437776 - 12/05/05 05:12 PM Re: Another Temporary Financing Question
Reed Offline
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Reed
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funny thing, the above question WAS hypothetical until just now, I know there are different opinions, but would you report a 6 month loan, purpose: new garage, repayment: tax return?

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#437777 - 12/05/05 05:24 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Yes.
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#437778 - 12/05/05 06:32 PM Re: Another Temporary Financing Question
Reed Offline
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thanks

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#437779 - 12/07/05 10:20 PM Re: Another Temporary Financing Question
CRAatBOK Offline

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I was in a training session yesterday in KC and a person that had been examined recently by the FDIC said that they made her reclassify her "splash and Dash" loans as HMDA. It goes against their own definition. I haven't heard from the OCC that they are making the same (mis)interpretation of the definition. I hope I don't because we do a lot of those type of loans.
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#437780 - 12/08/05 12:56 PM Re: Another Temporary Financing Question
David Dickinson Offline
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The FFIEC revised their FAQ again. There is a revised Q&A on Temporary Financing that I believe is specifically in response to the “Splash and Dash” issue from the FDIC. However, here's the twist: they are agreeing with the FDIC!
-----------------------------------------------------------

Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?

Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).

You can find the entire FAQ at the FFIEC website:
here
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#437781 - 12/08/05 02:39 PM Re: Another Temporary Financing Question
GreatBlue Offline
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Colorado
Dave,
When you say "agreeing with the FDIC", do you mean the examiners that are telling banks to reclassify "splash & dash" as HMDA reportable as indicated in KCGeoQueen's post, or do you agreeing with the Chicago FDIC bulletin Dan is relying on that says loans to be paid off by an asset sale are considered "temporary" under HMDA?
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#437782 - 12/08/05 02:47 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Bloomington, IN
It appears to be siding with the letter issued by the KC RO interpretation which contradicts the Chicago RO interpretation.

Anyways, I sent another email to my examiner this morning:

I have not heard anything from you concerning this, but the following Q&A is now appearing in the FAQs on the FFIEC’s Web site:

Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?

Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).

I’m not sure if this is a response by the HMDA Help people, which I don’t put too much faith in, or if it is an interagency response. Of course you know my position does not agree with the answer.

Have you heard anything from the DC office? If the DC office sides with the above response, which I’m hoping they do not, will we be required to go back and try to identify these loans that were considered temporary financing based on the content of the SCANS bulletin and enter them on the LAR this late in the year?

I have always prided myself in my understanding of HMDA and it took me three years to get our bank up to speed, so I sure would hate to have to “re-train” on temporary financing.

As always your help and comments will be greatly appreciated.

Thanks,
Dan
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#437783 - 12/08/05 03:11 PM Re: Another Temporary Financing Question
SMQ, CRCM Offline
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Between the lines
So now it sounds like that the only "temporary financing" (& therefore not HMDA reportable) is a loan that we make knowing that we are going to make another loan that would be reportable. Would you agree with this statement?
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#437784 - 12/08/05 03:27 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Bloomington, IN
Would I agree - absolutely not - but not sure if that means anything at this time.

But you are correct - they are saying the only temporary financing loan is a loan that will be replaced by a new "permanent" loan. Yet in their email response to me, see above, they claim they can't define temporary financing.
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#437785 - 12/08/05 05:04 PM Re: Another Temporary Financing Question
Denovo Co Offline
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NM
We are an FDIC regulated bank and just had our compliance exam in which I was told by the examiners that "under no other circumstances should a loan be considered temporary unless it is a bridge loan or a construction w/o perm financing. Period. I had a 2nd DOT loan for 6 months, interest only, HI, AND a committment from a mortgage lender for a total refinance. Examiners stated that it was still HI and should have been reported as such, since it was NOT a bridge loan or an initial construction of the dwelling. They said they 'understood' my thought process but I was still wrong. I put it on my LAR.

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#437786 - 12/08/05 05:17 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Bloomington, IN
I would still be arguing on this one - a bridge loan does not necessarily have to apply only to purchase transactions. A bridge loan bridges the gap until other financing arrangements can be made. What you described definitely sounds like a bridge loan and temporary financing.

Of course, once I get the final opinion from my lead examiner (once she hears from DC), I may be eating crow.
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#437787 - 12/08/05 06:23 PM Re: Another Temporary Financing Question
David Dickinson Offline
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Central City, NE
Sorry for the delay. I'm on the road today teaching BSA seminars (I'm in a hotel lobby right now).

GreatBlue: Sorry for the confusion. I'm referring to the FDIC's "Splash and Dash" interpretation.

This is nuts. Read the 2nd sentence of the answer to the FAQ: Construction and bridge loans are illustrative, not exclusive, examples of temporary financing.
Now, compare that to what the FDIC (KC RO) is saying [Like IMSHY stated] "under no other circumstances should a loan be considered temporary unless it is a bridge loan or a construction w/o perm financing. Period.

How do you reconcile these two statements?

The other thing that is crazy is that this is not a small change, yet they issue it mid year and hide it in a FAQ. This is huge! The 3 page FFIEC memo doesn't even mention it. No further explanation or examples. Bankers & examiners will be confused for years.
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#437788 - 12/14/05 02:49 PM Re: Another Temporary Financing Question
sugarbaby Offline
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Posts: 85
texas
We are an OCC regulated bank in southeast Texas. Last Friday I emailed one of the examiners that has been on the force for many years concerning the FFIEC Q&A and temporary financing. He ran my concern up the flagpole to their Washington office for a response. The response that he got was that the OCC does not necessarily agree with the example in the Q&A and that the OCC has asked the FFIEC HMDA subcommittee to review the matter and provide clarification. The examiner also advised me not to change anything that we are doing as far as input to our HMDA LAR until that clarification is received.

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#437789 - 12/14/05 02:58 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Quote:

the OCC has asked the FFIEC HMDA subcommittee to review the matter and provide clarification.




Great, maybe with this, and with the FDIC following up, we can get this resolved one way or the other.
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#437790 - 12/14/05 03:39 PM Re: Another Temporary Financing Question
Bullseye Offline
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FWIW, we are in the FDIC KC Region & were told this was coming during our last exam (4/05). Supposedly their reasoning behind this is that a "splash & dash" type loan really meets the definition of a HMDA loan (home purchase) and the true intent of HMDA is to have all of these loan types reported. A bridge loan would be exempt because the permenant financing would be reported, same goes for a construction loan. But a splash & dash would never get reported, therefore, should be reported even though the term is short & it is not to be paid with regular income. Our EIC said at that time their decision was pretty firm & not to expect them to change. I have done my LAR accordingly this year, but flagged every line that would need adjusting just in case the rules change.

I agree with Dave that this is a major change that has gotten very little attention. We do quite a few of these loan types so I am looking at quite an increase in HMDA reportable loans this year. That outta help us a little in our next CRA exam I guess!

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#437791 - 12/14/05 03:47 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Bloomington, IN
Quote:

A bridge loan would be exempt because the permanent financing would be reported, same goes for a construction loan.




I disagree with this reasoning;

1. You may not do the permanent financing, therefore it would not be reported by you but by the entity that does. It would also be possible for the construction loan to paid by cash, therefore the loan would never be reported.

2. The entity doing the permanent financing on the "splash and dash" will report it, therefore it is still getting reported.
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#437792 - 12/14/05 03:56 PM Re: Another Temporary Financing Question
Bullseye Offline
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I didn't say I agreed with them! She just kept on instisting that a splash & dash loan type will never be reported when it is a purchase and should be. I agree that there are several situations in which it could be, just as there are several situations in which a construction or bridge may end up not being reported if there is no permenant financing. So I guess it's a wash??

I can't tell you why they are thinking along these lines at all. When it was presented to me that the change was coming, I pushed them to explain to me why & that was the response I got. I am thinking that becoming an OTS bank is sounding really good....they are quiet on this issue, $1 billion CRA threshold........hmmm......

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#437793 - 12/14/05 04:06 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Bloomington, IN
I was saying I disagree with their reasoning.

Quote:

She just kept on insisting that a splash & dash loan type will never be reported when it is a purchase and should be.




Again I disagree with their reasoning. When the "splash and dash" goes to permanent financing, whether by you or another entity, the permanent loan is reported as a home purchase, not a refinancing.
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#437794 - 12/14/05 04:12 PM Re: Another Temporary Financing Question
Bullseye Offline
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Agreed. But I think that she was more talking about properties that are flipped. Bought, fixed up & sold within the six month period, no permanent financing needed. Those never appear on the LAR and apparently, she feels as though as a home purchase, they should be.

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#437795 - 12/14/05 04:24 PM Re: Another Temporary Financing Question
RVFlyboy Offline
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Soaring over Georgia
Quote:

Agreed. But I think that she was more talking about properties that are flipped. Bought, fixed up & sold within the six month period, no permanent financing needed. Those never appear on the LAR and apparently, she feels as though as a home purchase, they should be.



For what it's worth I do agree with this reasoning.
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#437796 - 12/14/05 04:24 PM Re: Another Temporary Financing Question
Reed Offline
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West Coast
just for the sake of argument, what if a persons main source of income comes from "flipping" properties, wouldn't the loan be paid from "ordinary income"?

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#437797 - 12/14/05 05:19 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Bloomington, IN
I started at this bank in March 2001 after being out of compliance for 5 years. The following is an email exchange with HMDA Help in May 2001. It took some digging to find the hard copies.

Our bank makes “construction loans” to individuals or business entities to construct or to purchase and renovate homes for resale.

Generally these loans are set up on 6 or 12 month notes. If the home has not sold at the end of this period we will then (depending on the circumstances) make a 3 – 5 year commitment on 12 month notes with interest paid monthly, quarterly or semi-annually until the home has sold. If the home has not sold at the end of the commitment we then will require the loan to be converted to permanent financing.

1. Does the fact we are making a 3-5 year commitment make these loans reportable?
2. When these loans are converted to permanent financing are they reported as refinances or home purchases?

Thank you,
Dan Persfull

As long as the loan is considered “temporary financing” (they used the “” in the reply) then it is not HMDA reportable. To report the loan as a refinancing the original obligation would have to be replaced with a new obligation. 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.

Thank you for using HMDAHELP. I hope this information is helpful.


Based on this reply from 2001, and the FDIC SCANS bulletin issued May 2002 from the Chicago RO you can see why I am so adamant in my stance on this issue.
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#437798 - 12/14/05 05:27 PM Re: Another Temporary Financing Question
RVFlyboy Offline
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I don't disagree that the new information coming down is a change in stance from what was previously told to you, Dan. But I'm saying I agree with the change and the need for it. I believe that given today's real estate market, that former stance now loses many loans that should be considered home purchase loans and should be part of the data system.
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#437799 - 12/14/05 05:30 PM Re: Another Temporary Financing Question
Bullseye Offline
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Quote:

Quote:

Agreed. But I think that she was more talking about properties that are flipped. Bought, fixed up & sold within the six month period, no permanent financing needed. Those never appear on the LAR and apparently, she feels as though as a home purchase, they should be.



For what it's worth I do agree with this reasoning.




But then why have a temporary financing exception at all? Why don't they just say all loans with a qualifying purpose, except for bridge & construction (they go on when rolled over) should be on the LAR? It still goes back to the point that some construction or bridge loans do not end up with permenant financing either so shouldn't those go on even though they are short-term?

I guess I see their point in regards to flipping, but like I said, the same could happen with a bridge or construction so why stop there??

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#437800 - 12/14/05 05:45 PM Re: Another Temporary Financing Question
Dan Persfull Offline
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Bloomington, IN
Quote:

loans that should be considered home purchase loans and should be part of the data system.




Jim, I know you and I have differed on this issue and we have respected each other in our differences.

My whole contention - even without the above response or the FDIC bulletin - is that temporary financing is exempt.

How are these "splash and dash" loans permanent financing?

If you go by this KC Ruling then basically the only loan that will qualify as temporary financing will be a construction only loan.

IMO, and I stress IMO, including these loans on the LAR constitute the same "unintentional" consequences as reporting a $500,000 commercial loan as a refinancing simply because it is secured by a dwelling.

If they can define a home purchase, home improvement or refinancing loan, then why on earth can't they issue a definition for temporary financing? It's clear that you and I, both seasoned compliance people, have different opinions on what constitutes temporary financing. A regulatory definition would put this difference of opinion aside.

I apologize for the rant.
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