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#757015 - 06/20/07 05:30 PM Construction to Permanent Loan- Purchase?
CaseyBoo30 Offline
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Joined: Feb 2007
Posts: 262
Winchester, KY
I have always had the understanding that a when a construction loan goes to permanent financing, this is considered the purchase, not just for HMDA Purposes, but across the board. However, a bank I am auditing considers this to be the refinance of the construction loan and only loans that are construction to permanent combined into one loan at the inception are considered purchases. What is the correct interpretation?

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Lending Compliance
#757022 - 06/20/07 05:32 PM Re: Construction to Permanent Loan- Purchase? CaseyBoo30
David Dickinson Offline
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David Dickinson
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Posts: 18,762
Central City, NE
I'm with you. Read the definition of "Residential Mortgage Transaction" (mostly read the commentary) in Reg Z. After reading it, you'll see that the construction to Perm is to be treated like the purchase (no RofR but you need a P-TIL).
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#757063 - 06/20/07 06:09 PM Re: Construction to Permanent Loan- Purchase? David Dickinson
CaseyBoo30 Offline
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Joined: Feb 2007
Posts: 262
Winchester, KY
Thank you. I couldn't quite put my finger on why I understood it this way. I should have known to go to the commentary.

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#757065 - 06/20/07 06:10 PM Re: Construction to Permanent Loan- Purchase? David Dickinson
RR Joker Offline
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RR Joker
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The Swamp
Ditto that understanding.
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#757089 - 06/20/07 06:27 PM Re: Construction to Permanent Loan- Purchase? RR Joker
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
And from the GIR for HMDA reporting:


Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regulation C and is not reported.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#757130 - 06/20/07 06:48 PM Re: Construction to Permanent Loan- Purchase? Dan Persfull
Truffle Royale Offline

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While I agree with everything that's been said here, let me throw another log on this fire.

Secondary market considers the take out of a construction loan a REFINANCE. Desktop Underwriter writes it as a REFINANCE. I've had an uphill battle here convincing everyone that it doesn't matter what the investors say, this is a purchase for Reg Z and HMDA and must be treated as such.

This may be why the bank you're auditing is looking at these loans as refinances. Just something to consider when you approach them about it.

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#757431 - 06/20/07 10:01 PM Re: Construction to Permanent Loan- Purchase? Truffle Royale
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
Yes, 2nd Market often do things like this. They also required life of loan determinations and may require replacement cost on flood insurance, but these aren't compliance requirements. Don't let their procedures become a regulatory requirement.
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David Dickinson
http://www.bankerscompliance.com

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#757547 - 06/21/07 01:07 PM Re: Construction to Permanent Loan- Purchase? David Dickinson
RR Joker Offline
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RR Joker
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Posts: 20,654
The Swamp
When I was a mortgage originator selling to the secondary market...these loans were considered purchases...something either changed (that's been many moons ago), or it's specific possibily to your investor??
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

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#757579 - 06/21/07 01:33 PM Re: Construction to Permanent Loan- Purchase? RR Joker
MN Banker Offline
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Joined: Aug 2006
Posts: 980
We sell to a lot of secondary market investors, and they all classify it as a refinance too. It's really quite a pain...

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