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#67035 - 03/12/03 04:53 PM
HMDA & temporary financing again
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Diamond Poster
Joined: Feb 2003
Posts: 2,362
Colorado
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There have been several threads discussing how to determine if a loan is temporary financing under HMDA, given that the term is not defined.
However, on the FFIEC's website, there is a FAQ section which states:
Q: What is the definition of short-term financing?
A: HMDA's Regulation C does not define short-term financing. Your institution must define short-term financing based on your lending practices and apply that definition consistently.
Doesn't that give the bank the ability to decide for itself how it defines temporary financing as long as it applies it consistently?
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Opinions are mine and not necessarily my employer's.
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#67036 - 03/12/03 05:42 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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There is a difference between short term and temporary financing.
If you set up a loan amortized over 6 months, that would be a short term loan but not a temporary loan. I agree with the camp that you have to look at the source of the repayment as to whether the loan is "temporary" financing.
The following is from the FDIC: May 29, 2002
Bulletin Number: CHIRO-07-2002
HMDA and ‘Temporary Financing’
One area of the Home Mortgage Disclosure Act (HMDA) and Regulation C that continues to confuse reporters is the exclusion for ‘temporary financing’. In this message, we will try to clarify the term ‘temporary financing’ and discuss how many banks are incorrectly applying this exclusion.
Regulation C and the HMDA: Getting It Right guide (HMDA Guide) do not define ‘temporary financing’. However, Regulation C and the HMDA Guide do provide a good foundation for understanding what ‘temporary financing’ means. Section 203.4(d)(3) of Regulation C provides some insight by stating “Temporary financing (such as bridge or construction loans).” The HMDA Guide uses similar phrases in several parts. On page 10 under “What Types of Transactions Are Excluded?” it states “Construction loans and other temporary financing (but construction-permanent loans must be reported).” On page 7 of Appendix A under “Data to be excluded”, it states “Construction or bridge loans and other temporary financing.”
Temporary is defined in the dictionary as “lasting for a limited time”. Based upon the dictionary definition and the clues in Regulation C and the HMDA Guide, ‘temporary financing’ is short term financing that is only used until other financial arrangements to pay can be made. Accordingly, looking at the nature of the credit and how it is to be repaid is the only way to determine if it meets the ‘temporary financing’ exclusion.
If we look at a construction or a bridge loan (specifically defined in HMDA as temporary), we see that the payment of the construction or bridge loan is usually from another loan (a mortgage with some scheduled duration to pay for the home) or sale of an existing home. At the time the construction or bridge loan is extended the bank knows that it will be paid from another loan or an asset sale. Therefore, the construction or bridge loan was only made until other financial arrangements to pay
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The opinions expressed are mine and they are not to be taken as legal advice.
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#67040 - 03/12/03 07:59 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Sep 2002
Posts: 13,965
TN
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I was told by the Compliance Officer at the FDIC in Memphis that all home improvement and refinances were HMDA reportable no matter the term. We were written up because I wasn't aware of that fact.
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#67041 - 03/12/03 08:13 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Lewis, one thing I have noticed in getting answers from HMDA Help is that they don't offer opinions. If they can't find the answer in the Reg. that they can basically "cut and paste" they refer you to your examiners.
Since we are regulated by the FDIC, I comply with their directives. It appears you are also FDIC, or at least your regulator agrees with FDIC's interpretation.
I consider any loan that is to be paid from income to be short term, not temporary. If it is to be paid from other financing arrangements or from the sale of the property, then I consider it temporary.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#67046 - 10/24/04 04:47 PM
Re: HMDA & temporary financing again
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Anonymous
Unregistered
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I was doing some research as we had a question on a loan for temporary financing and came across this thread. Our loan was to provide financing for our borrower to purchase his principal residence. However the term of the loan is interest-only for 36 months and the borrower anticipates the loan will be refinanced at that time. I'm looking at this loan as "temporary financing" even though it is longer than 2 years since we know the borrower will be arranging additional financing at the maturity of the loan. I don't plan on reporting it on the LAR. Would appreciate any other thoughts? Thank you.
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#67048 - 10/25/04 02:53 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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I agree you have temporary financing not subject to HMDA reporting. As mentioned before - the term itself does not determine if the loan is temporary.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#67049 - 10/27/04 06:07 PM
Re: HMDA & temporary financing again
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Gold Star
Joined: Feb 2002
Posts: 335
The South
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OK - now I'm really zonkers....I just looked at this from "Kirchman" Quote:
Q-12. We are going to make an 18-month home construction loan to a husband and wife. The loan amount will include money to buy the land on which they will build the home. Covered by RESPA? A-12. Yes. The exemption for temporary financing does not apply if the loan finances transfer of title to the first user. Section 3500.5(b)(3).
Didn't the husband and wife use the money to 'transfer title'? Or is "Kirchman" wrong?
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#67050 - 10/27/04 06:11 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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Kirchman's response is correct.
The H&W are using proceeds of the loan to purchase the land, therefore title will transfer to them, the first users.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#67051 - 10/27/04 06:15 PM
Re: HMDA & temporary financing again
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Gold Star
Joined: Feb 2002
Posts: 335
The South
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I said I was 'zonkers'....the thread is talking about temporary financing in regard to HMDA; not RESPA...Silly me...So sorry!
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#67052 - 12/31/04 06:15 PM
Re: HMDA & temporary financing again
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Diamond Poster
Joined: Mar 2003
Posts: 1,035
OK
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Quote:
Here's the way we say it in our Advanced Lending Manual: ----------------------------------------------------------- HMDA does not apply to: 3. Temporary financing (bridge, speculation home, construction). If the application is for a construction/permanent loan - record only the permanent phase of the loan. Temporary financing is not defined by Regulation C; however, temporary financing usually means the loan will not be repaid from ordinary income, is a single payment loan and is less than two years in term. -----------------------------------------------------------
I have a letter from the Denver Federal Reserve where an attorney put the above definition ("not repaid from ordinary income, .... is less than 2 years in term.") in writing.
David, are you saying in your manual that all three of these have to be met in order for it to be temporary? What if it is only 2 out of 3 for example: less than 2 years, single payment, but will be paid from ordinary income (there ordinary income is just a more random stream as opposed to a monthly one).
Also, what is "ordinary" income? Would you include with that income from side jobs (not their primary profession), money from retirement accounts, bonuses, cash gifts, etc.?
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#67053 - 12/31/04 06:40 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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IMO, all three have to be met. However, I place very little, if any, emphasis on the term to determine temporary financing for HMDA reporting.
Ordinary income would include all the sources you mentioned.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#67055 - 12/31/04 08:09 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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The sale of an asset or arranging other financing.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#67056 - 01/03/05 04:28 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Nov 2000
Posts: 18,763
Central City, NE
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Quote:
David, are you saying in your manual that all three of these have to be met in order for it to be temporary? What if it is only 2 out of 3 for example: less than 2 years, single payment, but will be paid from ordinary income (there ordinary income is just a more random stream as opposed to a monthly one).
Please give me a specific example of a real life loan that meets 2 of the 3 tests that I have listed.
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#67057 - 01/03/05 05:58 PM
Re: HMDA & temporary financing again
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Diamond Poster
Joined: Mar 2003
Posts: 1,035
OK
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Okay, what about these situations:
An example would be a loan to refinance their home purchase and it is for 18 months and they will pay 3 semi annual payments out of his income from being a realtor.
Or if it was a loan to refinance and they were paying one single payment when they sold cows/grain, etc.?
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#67058 - 01/03/05 07:42 PM
Re: HMDA & temporary financing again
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10K Club
Joined: Aug 2002
Posts: 47,532
Bloomington, IN
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IMO, both examples would be short term financing, not temporary financing. The income from being a Realtor would be ordinary income, and the sale of the cows or grain would be ordinary income from the borrower's farm operation.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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