Okay. I have thought about this and read the new rule and I think I have it down, but someone please tell me if I am off somewhere.

Mixed use property (C-store/gas station with manager's apartment above).

Currently:

Purchase - not HMDA reportable because we have determined it is not a dwelling based on income.
HI - install new coolers in the C-store - not HMDA because it is only improving the commercial part of the building
HI - install heat pumps in the C-store and apartment - HMDA reportable because some funds are being used to improve the apartment.
Refi - not HMDA reportable because we already determined it was not a dwelling, therefore not replacing a dwelling secured loan

In 2018:

Purchase - not HMDA reportable because we have determined it is not a dwelling based on income
HI - install new coolers in the C-store - HMDA reportable because the mixed use for HI only applies to multifamily dwellings
HI - install heat pumps in the C-store and apartment - HMDA reportable because some funds are being used to improve the apartment.
Refi - not HMDA reportable because we already determined it was not a dwelling, therefore not replacing a dwelling secured loan.

In other words, the only real change for mixed use property is in HI loans when it is not a multifamily building. If it is not multifamily, it is HMDA reportable regardless. If it is a multifamily, then we can go back and look at the mixed use to determine if it is HMDA reportable.

Right? Wrong? Indifferent?

Thank you.

1003.3(c)(10) That is our understanding.

I disagree with this one:
HI - install new coolers in the C-store - HMDA reportable because the mixed use for HI only applies to multifamily dwellings

If you classify the building as a "non-dwelling", then improvements to the building cannot be "home improvement" for HMDA. Here's something I wrote in our July newsletter on this topic:

------------
It’s extremely important that lenders classify mixed-use properties (both single building and multiple buildings). Once you do, that property will retain that classification (a dwelling or a non-dwelling) for any subsequent loans. For example, if you classified the retail/apartment building we described above as a non-dwelling and years later the borrower wants to refinance the loan, it’s not subject to HMDA. Why? Because the building is not a dwelling according to your initial classification. Therefore, it doesn't meet the definition of refinance (dwelling secured loan replacing a dwelling secured loan). Likewise, even if the borrower applies for a loan to improve only the residential portion of the mixed-use building, it’s not a home improvement loan. Once again, because the building is classified as “non-dwelling”. We asked the CFPB these very questions and they agreed.
------------


If you classify a mixed -use building as a non-dwelling, no loan secured by that building will never be subject to HMDA because it's not a dwelling. If you classify a mixed-use building as a dwelling, that's when you look at what the funds will improve. This is from page 32 of the 8/24/17 amendments:
The Bureau declines to treat all loans to improve mixed-use property as home improvement loans as this would expand coverage of commercial-purpose transactions and result in the reporting of loans or lines of credit to improve primarily the commercial portion of a multifamily dwelling.

Here's my summary for mixed-use buildings that are classified as dwellings:
If the proceeds will be used to improve the dwelling portion of the building, then it’s a home improvement loan for HMDA.
If the proceeds are used to improve non-dwelling portions of the property, then this is not a home improvement loan for HMDA.
If the proceeds are used to improve things that serve the entire property (water pump, electrical lines from the road to the buildings, pave the driveway, etc.), then it is a home improvement loan for HMDA.

I absolutely agree with David. Here is how I explain it to my clients:

First you determine if the mixed use property securing your loan is primarily residential or primarily non-residential. If the property is primarily non-residential, it is NOT a dwelling for HMDA and any loans secured by such a property are not HMDA reportable.

If the property was determined to be primarily residential and therefore a dwelling, then you do have to pay attention to the rest of the rule. The key is to realize that in these sections regarding how to report in various situations, the rule and commentary is discussing a dwelling secured loan. Focus on the word "dwelling". If the property was determined to be primarily non-residential, it is off the table for HMDA reporting because it is NOT a dwelling.

This is a major and wonderful change for primarily non-residential properties.

This of course assumes no other dwelling is securing the loan.

Thank you.

Great discussion! Thank you all - will be using this for sure.

David and Kathleen (and others too)...

Okay just when I think I have this down, I get to "over"thinking...

So let's say we've determined the primary use of the structure is residential, so it is considered a dwelling for HMDA.

The purpose is not to purchase or refi the structure, and is not to improve any part of the structure.
The purpose/funds will be used for miscellaneous consumer/personal purposes (ex: credit card debt).
Will we report this as "other"?

An extra question...for some reason my notes have a difference between a 1-4 family structure and a multifamily structure used as mixed-purpose...but I'm not finding supporting evidence to back this up. Do you all agree or disagree there is a difference when it comes to improvements?

My notes say:
-->1-4 family structure used primarily for residential purposes, and the improvements are to the commercial portion of the 1-4f structure only (ex: to the hair salon that is in the back of the house)...we still report as a home improvement loan.
-->Multifamily structure used primarily for residential purposes, and the improvements are to the commercial portion of the multifamily structure only...we do not report as home improvement loan. We would only report improvements if they were made only to the residential portion of the multifamily OR to the multifamily structure as a whole.

Yes, it will be an 'other' [HE loan]

Absolutely. Multi family/mixed purpose is an entirely different animal.

1- yes
2-yes

Thanks LOL - wrapping up some internal "guides" and training and I start questionning things. Ugh.

I totally understand that concept! !

This topic is haunting me because I am doing HMDA training for commercial today and tomorrow. I want to tell them to just classify all mixed use as non-dwellings.

We do quite a few commercial loans for nursing homes, assisted living, etc. so I don't want to make it too complicated.

There's no way to do that. If anything, I'd likely call them all dwellings and then omit what isn't.

Why? Based on:

If you classify a mixed -use building as a non-dwelling, no loan secured by that building will never be subject to HMDA because it's not a dwelling. If you classify a mixed-use building as a dwelling, that's when you look at what the funds will improve. This is from page 32 of the 8/24/17 amendments:

The Bureau declines to treat all loans to improve mixed-use property as home improvement loans as this would expand coverage of commercial-purpose transactions and result in the reporting of loans or lines of credit to improve primarily the commercial portion of a multifamily dwelling.

So if we classify as a non dwelling at the time of origination, we are done.

You can't *arbitrarily* classify it as a non-dwelling....you have to determine the primary use, using Reg. Z's criteria.

I'm not sure I agree with that statement. Here's what it says in in Comment 2(f)-4: Mixed-use properties. A property used for both residential and commercial purposes, such as a building containing apartment units and retail space, is a dwelling if the property's primary use is residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis.

Nowhere in there does it say anything about using Reg Z criteria to determine primary use of the property.

Now, what it does say is that the method for determining has to be a "reasonable" standard. And I think that's where Tracey's comment #2156251 above goes astray - classifying ALL mixed use properties as non-residential likely wouldn't be held to be a "reasonable" standard.

I agree that it doesn't....Reg. Z is the only regulation i know of that tries to define consumer purpose versus business purpose, thus my reference.

My main point was...you can't arbitrarily call all your mixed-use properties "non-dwellings".

But that reference in Reg Z is related to use of the loan proceeds, not how collateral is being used. I can have a loan to buy a non-owner occupied building that has 5 residential units of 1,500 sq feet each and one little coffee shop of 300 sq feet on the ground floor. From a Reg Z perspective, that loan is a business purpose loan. However, from a HMDA perspective, it would be hard to imagine a reasonable standard that would classify that property as a primarily commercial property.

I was speaking generally of 1026.3.....for example, 4 rooms of a structure might be devoted to living space and 4 rooms devoted to a "sewing business". Referencing 1026.3 can aid in determining whether the sewing business even qualifies as a "business" or not.

I wasn't trying to usurp Reg. C's own reference of any reasonable standard, or square footage, or income generated.

I just thought it created more confusion that it helped eliminate. I could see someone taking the scenario I provided in my last post and saying that since the loan was considered business purpose for Reg Z, the property could reasonably be classified as business use.

Well, my apologies then for creating more confusion than i helped eliminate.