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#482174 - 01/13/06 02:23 AM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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Bloomington, IN
The entire text of the Q&A is in my post starting this thread, however the Q&A can be found by clicking here and then clicking on Loan Purpose.
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#482175 - 01/13/06 01:54 PM Re: HMDA Temporary Financing Cave In
Len S Offline
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Just returned from meeting with regional FDIC Field Review Examiner and discussed this and other issues with her. She was unaware of the KC pronouncement, but my notes of her explanation of temporary financing show that she said the "meaning hasn't changed, but the interpretation has". The key to the interpretation is if the loan is going to be paid from a permanent financing source then the loan is temporary, but if it is going to be paid from a sale of the property (i.e., splash and dash) it is a reportable HMDA mortgage. I suggested she visit this thread to get an understanding of the confusion and frustration among many HMDA reporters on this controversy.
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#482176 - 01/13/06 02:01 PM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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Quote:

The key to the interpretation is if the loan is going to be paid from a permanent financing source then the loan is temporary, but if it is going to be paid from a sale of the property (i.e., splash and dash) it is a reportable HMDA mortgage.




Then the "spec home loans" that were referred to would not qualify for the temporary financing exemption, nor would 95% of bridge loans. These loans are designed to be repaid from the sale of the property not from long term financing.
Last edited by Dan Persfull; 01/13/06 02:05 PM.
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#482177 - 01/13/06 02:08 PM Re: HMDA Temporary Financing Cave In
redsfan Offline
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Quote:

Do you realize the implications of this? This means that banks that do housing tract construction financing will have to report those loans for HMDA.

Why?

Because a builder does not build houses with an intent to refinance them. A builder builds houses with an intent to SELL them!

If you take the latest brain-f*rt from the regulators to its conclusion, then banks will be filling HMDA LARS on all that Centex Homes does. And Griffin. And S&S. And Benchmark. And so on!

That is utter insanity, and I think a brave soul (Dan) needs to ask THAT question of the regulators - using the above quoted Q&A "reasoning".

I think keeping the "temporary" definition at any initial constrution is the better way to go.

FWIW - I think Splash and Dashes are simply a variation on initial construction, but apparently I'm not putting the right mushrooms in my salad.





So, how would you report location on a loan to builder under a master loan agreement or revolving line of credit, where there will be multiple properties financed over the course of a reporting year?
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#482178 - 01/13/06 02:13 PM Re: HMDA Temporary Financing Cave In
Reed Offline
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Quote:

There used to be a blurb in GIR, I think it was in a discussion of lot loans, that if any of the loan proceeds were used to begin construction of a dwelling, it would be reportable. Of course, I can't find it now, so maybe they took it out of the book.




Does anyone else remember this? Was Shannon correct in saying that a construction loan could not be reportable (even in my example) because it isn't dwelling secured?

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#482179 - 01/13/06 02:17 PM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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Quote:

So, how would you report location on a loan to builder under a master loan agreement or revolving line of credit, where there will be multiple properties financed over the course of a reporting year?




Master loan agreement - each new construction is consummated by a separate note (or at least the way we structure them) under the master loan agreement. Therefore each new note would be reported as a home purchase.

Revolving lines of credit - Reg. C, at least for now, allows optional reporting for open end lines of credit. If you chose to report these you would only report based on the initial advance (unless each advance is supported by a new note).
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#482180 - 01/13/06 02:51 PM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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Quote:

But these would not be reportable because they are not secured by a dwelling - only a lot for residential construction.




I have to disagree:

1. The purpose of a construction loan is to construct (purchase) a dwelling and place it on the property. Your mortgage (security agreement) will include the improvements.

2. HMDA exempts construction only loans as they are by nature temporary financing, not because they are not secured by a dwelling. HMDA requires construction/permanent loans to be reported because these loans are not temporary financing by nature, however HMDA gives you the option to report either when the construction phase begins or when you convert it to the permanent financing phase.
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#482181 - 01/13/06 03:36 PM Re: HMDA Temporary Financing Cave In
GreatBlue Offline
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Quote:

As I said in a reply to my examiner and another BOLer. What the he!! were these people on when they came up with this interpretation?



It sure makes you wonder what kind of process they go through before they issue these FAQs. There's a reason why regulatory changes (including interpretations) should be subject to proposal and comment.
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#482182 - 01/13/06 04:55 PM Re: HMDA Temporary Financing Cave In
Audit Girl Offline
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Thanks for your help Dan.

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#482183 - 01/13/06 05:02 PM Re: HMDA Temporary Financing Cave In
Princess Romeo Offline

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Quote:

....she said the "meaning hasn't changed, but the interpretation has".




What the Hades kind of bureaucratic double-speak is THAT???

Okay - at this point, I'd like to introduce a new phrase that we can start using when we see these kind of regulatory shifts that defy logic.

This is from another message board of an entirely different group, but they have been using an interpreation for the acronym "WTF" (What the f....?)

This now means "Where's the Fruitbat" and "Fruitbat" is now the term for this kind of nonsense that drives us, well..... Batty!!!!!
Last edited by Bonnie M; 01/13/06 05:07 PM.
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#482184 - 01/13/06 05:39 PM Re: HMDA Temporary Financing Cave In
bgehres Offline
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I received a phone call from our regulator (fed) clearing up the construction loan issue (at least for us). We are to report the short term construction loans where the purpose is to build a house for resale. Her explanation was that the loan we are making is considered the "permanent financing" for the builder because they do not have any intention of obtaining another loan.

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#482185 - 01/13/06 06:06 PM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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Quote:

We are to report the short term construction loans where the purpose is to build a house for resale. Her explanation was that the loan we are making is considered the "permanent financing" for the builder because they do not have any intention of obtaining another loan.




So, are they saying that we can no longer rely on an exemption (construction loans) that is clearly allowed in the Regulation?

This is getting deeper and deeper.
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#482186 - 01/13/06 06:23 PM Re: HMDA Temporary Financing Cave In
bgehres Offline
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Yes.

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#482187 - 01/13/06 06:33 PM Re: HMDA Temporary Financing Cave In
Reed Offline
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we don't do const-perm loans, we do const-only. Most customers also take out permanent financing with us once the construction is complete, but they are not obligated to. So, how do you know if the initial construction loan will be reportable or not until the construction is complete? My consern there is with GMI collection...do you take it, do you not.....Reg B violation or Reg C violation....enie, meinie, minie, mo....

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#482188 - 01/13/06 06:53 PM Re: HMDA Temporary Financing Cave In
bgehres Offline
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My understanding standing is if the payoff of the loan is supposed to be another loan, then it is considered temporary. I don't think you actually have to have the commitment for the permanent loan, just the intent (I could very easily be wrong on this).

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#482189 - 01/13/06 06:55 PM Re: HMDA Temporary Financing Cave In
Reed Offline
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but should we have a procedure to document "intent" then?

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#482190 - 01/13/06 07:21 PM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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Quote:

we don't do const-perm loans, we do const-only.




Following the Q&A logic, the construction loan is a permanent loan for you as you have no commitment of long term financing. BTW, if you have no commitment for take out financing, why would you do the construction loan?



An email just sent to my contact at the FDIC Chicago Regional Office:

We desperately need official regulatory guidance on this issue.

By going to http://snipurl.com/ljs5 and reading the comments, you will be able to see that the release of the new Q&A has caused a lot of controversy and confusion among the compliance world. This Q&A also appears to be in direct conflict with the SCANS bulletin CHIRO-07-2002 released in May 2002.

I will not pull any punches and tell you right out I think the new interpretation is ludicrous. I will also state that XXXXXXX has been of great assistance in trying to get this resolved, but apparently there has been no official comments released either from the FDICís Washington, DC or Chicago Regional Offices.

If you follow the logic of the Q&A then the exemptions for construction and bridge loans might as well be eliminated from the Regulation.

Below is the text from emails sent to XXXXX and you can read my other thoughts and frustrations in the above link.

Any comments and direction that you can provide will be greatly appreciated. I will even offer to travel to the Regional Office, at my own expense if necessary, to try to get some meaningful guidance on this issue.

Thank you,
Dan Persfull
Last edited by Dan Persfull; 01/13/06 07:24 PM.
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#482191 - 01/13/06 07:50 PM Re: HMDA Temporary Financing Cave In
Princess Romeo Offline

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These recent regulatory "interpretations" would seem to further drive the nail that HOUSING TRACT Construction financing must be reported on HMDA.

And since the loans are to build Single Family Residences (albiet perhaps 50 to 100 at a time) you are going to wind up with HMDA LARS that have 1 loan, for $23 Million dollars for the "purchase" of a single family residence - no race, no ethnicity, no gender, and no income since the borrower will be a business entity.

WOW - very meaningful data indeed!
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#482192 - 01/13/06 07:58 PM Re: HMDA Temporary Financing Cave In
Princess Romeo Offline

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Quote:

My understanding standing is if the payoff of the loan is supposed to be another loan, then it is considered temporary. I don't think you actually have to have the commitment for the permanent loan, just the intent (I could very easily be wrong on this).




This will put RESPA and HMDA on opposite ends of the "meaning" of temporary financing. For financing to be "temporary" in REPSA, there can be NO permanent financing, not even the intent for permanent financing, by the same lender.

In HMDA, according to this latest missive, if you do NOT have permanent financing on the hook, then your loan is NOT temporary.

This is absolute insanity, but I fear that someone in a position of power made a bad decision, but the agencies may circle the wagons to defend it since NO ONE wants to admit they made a mistake.

I mean, look at what they did the notion of "Refinacing." We now have to look at SBA and other commercial loans to see if residential property is going to be affected in a commercial take-out or refinance.

This is getting the HMDA Data further and further AWAY from the original intent - too see if red-lining and discrimination exist that affects minority home buyers, homeownes, and housing stock in minority areas.

Good job!
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#482193 - 01/13/06 08:13 PM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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I just got of the phone with my Chicago contact. He was chuckling about some of the comments being made and said it was refreshing to be able to read so many candid comments and that for the most part people being able to keep some humor about them. Bonnie's mushroom salad kind of stuck out in his mind.

He is going to contact his KC contact to get a copy of the "splash and dash" letter (he hadn't seen it) and then he said he will see what he can do to get the ball rolling to get some sort of official comment from either the FDIC or the Fed. So I/we will just have to wait to see what kind of response I/we will get.

As I told him, all we are looking for is some definitive guidance on temporary financing and that as long as we had that we could live with it whether we agreed or disagreed.
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#482194 - 01/13/06 08:27 PM Re: HMDA Temporary Financing Cave In
Bullseye Offline
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FWIW, I posed the following question to my field examiner who went to his supervisor, who is now going to regional to get me an answer:

Jack owns a home, Jill owns a home. Jack & Jill get engaged & decide to build a home. They get a construction loan, sell both of their homes & pay off the construction loan. Does this fall on the LAR as a reportable entry because it is not being followed up with permenant financing or do I still get to use the construction loan exemption? And, since the Q & A just came out in December, if this loan is expected to be reported, would I have to go back & change my LAR for 2005?

This is going to the KC FDIC. I will let you know what I hear if you are interested.

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#482195 - 01/13/06 08:31 PM Re: HMDA Temporary Financing Cave In
Dan Persfull Offline
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Quote:

This is going to the KC FDIC. I will let you know what I hear if you are interested.




They're the ones who started this whole mess with their "splash and dash" letter. But, yes we would be very interested in the reply you get.
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#482196 - 01/13/06 08:57 PM Re: HMDA Temporary Financing Cave In
Bullseye Offline
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What frustrates me the most about the above example is that the GIR specifically says in Appendix D that a construction loan is an example of temporary financing and IS NOT REPORTABLE. So why should there even need to be a discussion about this question? They are sounding like they agree, but if they say these go on, can I trust nothing in the GIR?

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#482197 - 01/13/06 09:19 PM Re: HMDA Temporary Financing Cave In
Sinatra Fan Offline
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Quote:

Jack owns a home, Jill owns a home. Jack & Jill get engaged & decide to build a home. They get a construction loan, sell both of their homes & pay off the construction loan. Does this fall on the LAR as a reportable entry because it is not being followed up with permenant financing or do I still get to use the construction loan exemption? And, since the Q & A just came out in December, if this loan is expected to be reported, would I have to go back & change my LAR for 2005?





I doubt you'll get an answer, because the regulators don't know Jack. (except mine, of course)
Last edited by Steve Hoogerhyde; 01/13/06 09:21 PM.
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#482198 - 01/13/06 09:28 PM Re: HMDA Temporary Financing Cave In
Princess Romeo Offline

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Quote:


I doubt you'll get an answer, because the regulators don't know Jack. (except mine, of course)




Okay - we now need an emoticon for ROFLMAO!!!!

Too funny!
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