I am 99.9% sure this is to be reported as a purchase, but can't find any exact scenarios to compare it to. A commercial working capital line of credit secured by a dwelling for "further investment opportunities". The borrower is a real estate holding company that buys, renovates, rents, and sells residential real estate. There is no specific "future investment" noted, so I can't be certain how the funds will be used. It seems most appropriate to report this loan and report it as a purchase. Thoughts?

The purpose isn't directly to finance/purchase a dwelling, is it secured by an existing dwelling the borrower has available?

Excluded transactions include (HMDA GIR): "10. A closed-end mortgage loan or an open-end line of credit that is or will be made
primarily for business or commercial purposes, unless it is a home improvement
loan, a home purchase loan, or a refinancing. 12 CFR 1003.3(c)(10). Not all
transactions that are primarily for a business purpose are excluded transactions.
Thus, a financial institution must collect, record, and report data for dwelling secured,
business-purpose loans and lines of credit that are home improvement
loans, home purchase loans, or refinancings if no other exclusion applies. For
more information on determining whether a loan or line of credit is a home
purchase loan, home improvement loan, or refinancing, see 12 CFR 1003.2(f),(i),
(j), and (p) and the associated commentary. See also, HMDA Small Entity
Compliance Guide, Section 5.7, available in Appendix B of this Guide.
Regulation C provides that, if a closed-end mortgage loan or an open-end line
of credit is deemed to be primarily for a business, commercial, or organizational
purpose under Regulation Z, 12 CFR 1026.3(a), and its official commentary,
then the loan or line of credit also is deemed to be primarily for a business or
commercial purpose. Comment 3(c)(10)-2. For more information and
examples of business-purpose or commercial-purpose transactions that are
and are not covered loans, see Comments 3(c)(10)-3 and -4.

Yes, the loan is secured by a dwelling.

This is wacky HMDA day for me! If we refinance (fully satisfy and replace) our own loan to a borrower, do we still have to report it as a refinance? I cannot find an exclusion that applies. We had to do this because the loan was approaching our own term maximum. There is actually a Satisfaction of Mortgage that states "...full payment and satisfaction of said Note and Mortgage and surrenders the same as satisfied and canceled, and releases...."

This is a dwelling secured loan, both before and after the refinance.

Thank you.

complyorelse, I see refinancings with the same institution all the time. Maybe it's a balloon loan that has matured, or the borrower wants to consolidate multiple loans into one, or they want to refi at a better rate with cash out...... In each instance, I report as a refinance as I have a dwelling secured loan that is fully paying off and replacing the previous dwelling secured loan.

complyorelse - but you have no idea (???) if your loan proceeds will be used for purchase, refi, or operating expenses? You need both a covered purpose and to be dwelling secured. Unless the laon agreement restricts the funds usage I don't know how you'll meet the purpose test. "There is no specific "future investment" noted..."

Thank you, both Melissa and Andy.

A Financial Institution may rely on an applicant’s oral or written statement regarding the
proposed use of the loan proceeds. For example, a Financial Institution could use a check box or
a purpose line on an Application form. If an applicant provides no statement as to the proposed
use of the proceeds, and the Covered Loan is not a Home Purchase Loan, cash-out Refinancing,
or Refinancing, a Financial Institution reports the Covered Loan as for an “other” purpose.
Comment 4(a)(3)-1.

If a real estate investment firm states the money will be used for "future investments" one could rightfully assume the "future investments" are to purchase dwellings for rentals or for resale. The loan officer needs to do their job and find out what the intended "future investments" are. You only need to report the intended (stated) purpose at the time the LOC is opened. If they end up using the line afterwards for a different purpose than they initially stated has no bearing on your initial reporting.

Dan, I am re-reading this and want to ask if this is just one of those scenarios where we have to decide how to report/not report and be consistent. The "future investment" phrase is used a lot at this institution for cash out loans. I agree that the loan officer should clarify but for the many loans we currently have that don't elaborate, I am stuck with the information I have.

The dwelling secured loans in question are to real estate holding companies who purchase houses, so I assume the "future investments" would be to purchase more homes. However, the funds could be used to improve properties, or something altogether different that wouldn't be HMDA reportable at all.

So what you are basically saying is that your loan officers just hand out money to customers and have no idea what they are really going to do with it. You must have some pretty credit worthy customers or a very lax requirement for writing up commercial loan requests and justifications.

To piggy back on Randy's comment about not getting the loan purpose. You might want to review this $250,000 CMP assessed to The International Bank of MIami, N. A. This was from 2007.

CMP: $250,000 Agencies: OCC Assets 9/30/06: $807 million
The International Bank of Miami, N.A., Coral Gables, Florida, is alleged to have violated the Bank Secrecy Act; to have engaged in unsafe and unsound practices when it failed to supervise adequately its Capital Markets Group (CMG); and to have failed to ensure that CMG's securities transactions were conducted safely, soundly, and legally. Specifically, the OCC's order alleges that the bank:
• Violated the BSA and 31 CFR 103.33(a) [records of loan transactions] by permitting CMG to maintain records that frequently failed to adequately identify a legitimate business purpose for loans, or fully and adequately describe the nature and purpose of loans (loans were described merely as being for "working capital").
• Failed to maintain a system of controls to monitor and report suspicious activity.
• Failed to adequately identify and monitor accounts of politically-exposed persons (PEPs).
• Failed to monitor loans accounts and payments for suspicious activity.
• Did not have an adequate training program on detecting and reporting suspicious activity.
• Permitted CMG to make loans that did not conform to the bank's own lending policies, and to omit obtaining proper authorization for large credits.
• Allowed CMG to provide incomplete or inadequate loan documentation and recordkeeping, not in accordance with bank policies.
• Failed to do adequate customer due diligence, especially for high-risk customers.
• Allowed CMG to maintain an inadequate record of its securities transactions.
• Permitted OMG to engage in securities transactions in violation of OCC regulations.
• Allowed CMG to conduct securities transactions with high-risk countries without risk management procedures.


If the loan officers are systematically not getting the loan's purpose then how can you justify management has a process in place for compliance with HMDA.

From page 126 of the 2020 GIR.

9.2.2 HMDA responsibilities

A Financial Institution’s management should ensure that procedures and systems exist to collect
and maintain accurate data for each Covered Loan and Application that the Financial Institution
is responsible for reporting.

Let's try to reel this in a bit please. I absolutely do not think our loan officers are handing out money with no idea what the funds are being used for; the loan officer just didn't include the information in the write-up. As I stated, I am simply trying to properly report HMDA loans. The quality of the write-ups are a different issue that I agree needs to be addressed. In the meantime, HMDA must be reported correctly.

I am still trying to figure out how to handle these dwelling secured cash out loans to real estate related companies for future investments. I can see both sides of not reporting due to no clear purpose but can also see reporting them based on an assumption that the funds will be used to purchase additional properties. From a HMDA regulatory perspective, it almost seems that making an assumption about the use of funds is risky.

I think the point is: if the LOs really do know what the money will be used for, then the write-ups need to get cleaned up to include that information so that you are not left guessing. Without that, you're left with an unanswerable question really.....i.e., "do we report loans for HMDA that may or may not have a HMDA reportable purpose?".

I agree with raitchjay the write-ups need to be more precise in the use of the funds. Getting that cleared up falls on management.

Violated the BSA and 31 CFR 103.33(a) [records of loan transactions] by permitting CMG to maintain records that frequently failed to adequately identify a legitimate business purpose for loans, or fully and adequately describe the nature and purpose of loans (loans were described merely as being for "working capital" further investment opportunities/future investment.).

The BSA side of this has been noted and I really appreciate the information. Since we are in the HMDA forum, I am still trying to figure out how to handle HMDA reporting for these dwelling secured cash out loans to real estate related companies for future investments. I can see both sides of not reporting due to no clear purpose but can also see reporting them based on an assumption that the funds will be used to purchase additional properties. From a HMDA regulatory perspective, it almost seems that making an assumption about the use of funds is risky.

I don't think anyone knows how to answer this question:

"Do we report for HMDA loans that may or may not have a HMDA purpose."

Sorry...not trying to be short or sarcastic.

And as Dan has pointed out...they weren't just pointing out BSA ramifications, but HMDA ones as well. See Dan's post above about the HMDA responsibilities of management.

If the loan officers are not requesting the information as they should be then you really cannot make the assumption what the funds are for.

Although one could assume the future investment statement from a real estate investment company refers to future dwelling purchases that would strictly be an assumption without a direct comment from the borrower.

Thank you. I really do appreciate the various insights and totally agree about the BSA ramifications of poor quality documentation.

If the LO does know, then ask them. Put the answer in your file, and deal with the write-up deficiencies so you don't have to reach out to them every time one of these comes along. If they aren't asking, and you don't know where the funds are going, then you've got some risk of HMDA criticism (and other things) whether you put it on the LAR or not. Making assumptions is indeed risky.

Thank you. The clean up is under way!