Thread Options
#901771 - 02/07/08 09:18 PM HMDA - construction again
ckme Offline
100 Club
ckme
Joined: Sep 2002
Posts: 243
I know that this topic has been discussed but my specific situation is confusing me.

We have construction loans that were made to contractors to build spec homes as draw down lines of credit. The houses have been finished, and we renew the loan (new note) for 12 months interest only (single pay). The expectation is to sell the house and pay off the loan. Is this loan a HMDA purchase? What if I have to do it for another year when this one matures?

Thanks - my brain is fried.

Return to Top
HMDA

   
HMDA Academy
#901820 - 02/07/08 09:56 PM Re: HMDA - construction again ckme
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,710
Bloomington, IN
Are you renewing the note or are you refinancing the note? If you're renewing it would remain exempt. If you are refinancing it (satisfying and replacing the old note with a new one) then IMO you have a home purchase loan. The loan is not being repaid from longer term financing nor does it fall within the category of a bridge loan nor is it still a construction loan. If you have to refinance it again you would then have a refinancing.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#901859 - 02/07/08 11:00 PM Re: HMDA - construction again Dan Persfull
ckme Offline
100 Club
ckme
Joined: Sep 2002
Posts: 243
We replaced the note with a new one. I am thinking that I need to report it as a home purchase if the house is complete. We have some that are maturing (and being replaced with new notes) that are not complete and the purpose is to complete construction (draw down notes). I think those are still construction and exempt.

Return to Top
#904919 - 02/14/08 06:26 PM Re: HMDA - construction again Dan Persfull
SouthoftheBorder Offline
Gold Star
Joined: Feb 2002
Posts: 335
The South
I still have concerns about reporting loans to contractors that have multiple finished lots but no buyers. We have had to reconstruct repayment to a short-term single pay 'modified' note hoping the house will sell - or we'll own it.

Is everyone saying all the finished lots where we renewed/modified would be HMDA reportable?

Return to Top
#904927 - 02/14/08 06:33 PM Re: HMDA - construction again SouthoftheBorder
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,710
Bloomington, IN
Renewals and/or mofifications are not reportable transactions.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#904966 - 02/14/08 07:02 PM Re: HMDA - construction again Dan Persfull
SouthoftheBorder Offline
Gold Star
Joined: Feb 2002
Posts: 335
The South
We do get a new note for the renewal but use the same loan number, so does that change your answer?

Return to Top
#904998 - 02/14/08 07:16 PM Re: HMDA - construction again SouthoftheBorder
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,710
Bloomington, IN
The loan number is merely an internal accounting and tracking tool, it does not play a factor in the determination.

If your new note satisfies and replaces the existing note then you have refinanced the note. Since these loans are not designed to be paid with long term financing they are not temporary loans and would now be reported as home purchases.

If the new note is a renewal of the original note, in other words if the original note is still your legal obligation and the new note is a modification or amendment to that note then you have a renewal which would not be reportable.


Now with that said, I too do not think it is proper to have to report these type loans, however I don't see where they meet the temporary loan classification or any other exempt classification.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#905040 - 02/14/08 07:38 PM Re: HMDA - construction again Dan Persfull
SouthoftheBorder Offline
Gold Star
Joined: Feb 2002
Posts: 335
The South
So- maybe the way around this situation is to keep the original note and just modify it to avoid HMDA reporting. Now I just have to figure what is involved with modifying a note using our processing system.

Return to Top
#905102 - 02/14/08 08:15 PM Re: HMDA - construction again SouthoftheBorder
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,710
Bloomington, IN
In the new note we place a statement similar to "this note is a renewal/amendment to note # XXXXXXX and all its covenants and provisions remain in full force". The original note is kept intact and if we should have to go to court it and all of the "renewal notes" are presented as our legal obligation and evidence of the debt.

Also, lookout for "modifying or renewing" a matured note. I have yet to figure out how one would "modify or renew" an obligation that has matured.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#905115 - 02/14/08 08:21 PM Re: HMDA - construction again Dan Persfull
SouthoftheBorder Offline
Gold Star
Joined: Feb 2002
Posts: 335
The South
Darn - I didn't even think about that - most of these are matured or about to mature. When you find out will you let us all know......? ???

Return to Top
#905124 - 02/14/08 08:27 PM Re: HMDA - construction again SouthoftheBorder
SouthoftheBorder Offline
Gold Star
Joined: Feb 2002
Posts: 335
The South
Actually - When I think about it we renew matured notes and lines of credit u]all[/u] the time.

Return to Top
#905158 - 02/14/08 08:45 PM Re: HMDA - construction again SouthoftheBorder
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,710
Bloomington, IN
It happens everyday...but that doesn't make it "right". Nor am I saying my stance is "right".

If the obligation is matured and it can't be paid how does one renew that obligation? It can be refinanced into a new obligation, but how would one renew the old (matured) obligation?

Take a HELOC as an example. If it is "renewed" before its maturity no new disclosures are required under Reg. Z. However, if it has matured and then is "renewed" it is considered to be refinanced into a new plan for the purposes of Reg. Z and all new disclosures are required.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#905179 - 02/14/08 08:56 PM Re: HMDA - construction again Dan Persfull
complyorelse Offline
Gold Star
Joined: Nov 2007
Posts: 442
U.S.
This is the most confusing topic!! I was under the impression that since the construction was complete and the note matures, that if you offer any kind of financing beyond the initial financing that it had to be reported as a home purchase and reported on HMDA. The construction is complete and continued financing is being obtained so it can no longer be classified as a construction loan.

Return to Top
#905188 - 02/14/08 09:00 PM Re: HMDA - construction again complyorelse
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,710
Bloomington, IN
Cconrad, you can modify the original note or renew it, therefore it remains in force and does not lose its exemption. Only if the obligation is satisfied and replaced does it lose its exemption.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#905258 - 02/14/08 09:40 PM Re: HMDA - construction again Dan Persfull
complyorelse Offline
Gold Star
Joined: Nov 2007
Posts: 442
U.S.
Dan,

Can you please tell me what you were referring to in this Q & A in relation to this?

P and I Payments - HMDA Reporting
Answer by Dan Persfull, BOL Guru
Guru Bios

Question: I work in commercial lending and we have several construction loans to builders that we are now having to extend the maturity date and modify the payments to P and I (principal and interest) because the homes are not selling. Is this HMDA reportable?

Answer: Yes. You are converting construction loans to permanent financing. You will report them as a home purchase. From page D-6 of A Guide to HMDA Reporting: Getting It Right:

...A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan....

Return to Top
#905286 - 02/14/08 09:49 PM Re: HMDA - construction again complyorelse
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,710
Bloomington, IN
If they were truly modifying the notes and not replacing them with new ones then I gave an incorrect answer.

Modifications and renewals are not reportable.

However, it is still my opinion if the notes have matured then any new note is replacing that matured note instead of renewing it. But that is my opinion.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top

Moderator:  SMQ, CRCM