I have read the Q & A's on the HMDA Heaven page about this but I'm still confused about what temporary financing is or isn't....

For example, if a business loan is made with the purpose of purchasing an investment property to rehab and flip AND we state on our loan files that source of repayment is Sale of this Real Estate....would this be considered temporary?

Same scenario, but this time the loan file states that source of repayment is income, would that make it temporary even if we know the loan is being paid off due to sale of the secured real estate?

Would it make any difference what so ever if the loan term was 12 months and interest only?

Neither scenario is temporary financing. These are "splash & dash" loans as described in the 11/05 Q&A. The loan's repayment source would have to be other financing arrangements to be a temporary loan. Never look to the term as a deciding factor, look to the repayment source.

OK, but what I've read is "sale of assets" to repay the loan might fit as temporary financing. Wouldn't the sale of that property in scenario #1 qualify?

With the release of the 11/05 Q&A, the sale of an asset test has been thrown out the window.

Click here and read the Q&A under Loan Purpose for Temporary Financing.

Thanks Dan.

Why would you make a $150,000 loan for 6 months and not know what the repayment source will be? I would not treat such a loan as temporary financing.

Anon #1 here....I understand what Anon #2 is asking. The whole Temporary Financing definition is still confusing to me. Personally, I would never make a loan as Anon #2 describes without knowing the repayment source.

However, again, what if the repayment source is the sale of that property in 6 months OR refinance if it doesn't sell? I would think it would be temporary financing (term regardless)....so again...confused???

From anon #2:

Quote:

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we don't know the repayment source (whether they will get other financing or pay it off in 6 months with cash)

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This indicates to me they have no idea how the loan will be paid. If they have no loan commitment in the file, either internally or externally to refinance the loan then it would be my opinion they based their loan decision on the sale of the asset, or the liquidity of the borrower as being the source of repayment. To me this would not be temporary financing as the scenario is presented.