I am reviewing our commercial loans for HMDA compliance.

If the initial loan that was refinanced was land only, and the new loan will be used to construct homes and absorb that land loan, do I report as a purchase? I don't think it would be a refi since the initial loan wasn't HMDA reportable.


Loan Z is made to business partners A and B. Business partner B obtains a loan to buy-out business partner A, resulting in Loan Q. To me, this feels like a purchase, even though it is replacing an existing obligation. It is changing the borrowers on the loan. Am I correct? Or would this be a refi?

On your first question, it can't be a refinance as you are not replacing another loan secured by a dwelling. Therefore, it would be reported as a purchase.

On your second question, I would probably call this a refinance, depending on some specifics. For example, is Loan Z to the individuals or a corporation? And then, is Loan Q to individual B or to a corporation? For me, if one "person" (see Reg C definition) is on the new loan who was also on the prior loan, I would call it a refi. Some don't take this approach and call it a purchase, but I do based on the below.

4. Same borrower. Section 1003.2(p) provides that, even if all of the other requirements of § 1003.2(p) are met, a closed-end mortgage loan or an open-end line of credit is not a refinancing unless the same borrower undertakes both the existing and the new obligation(s). Under § 1003.2(p), the “same borrower” undertakes both the existing and the new obligation(s) even if only one borrower is the same on both obligations. For example, assume that an existing closed-end mortgage loan (obligation X) is satisfied and replaced by a new closed-end mortgage loan (obligation Y). If borrowers A and B both are obligated on obligation X, and only borrower B is obligated on obligation Y, then obligation Y is a refinancing under § 1003.2(p), assuming the other requirements of § 1003.2(p) are met, because borrower B is obligated on both transactions. On the other hand, if only borrower A is obligated on obligation X, and only borrower B is obligated on obligation Y, then obligation Y is not a refinancing under§ 1003.2(p). For example, assume that two spouses are divorcing. If both spouses are obligated on obligation X, but only one spouse is obligated on obligation Y, then obligation Y is a refinancing under § 1003.2(p), assuming the other requirements of § 1003.2(p) are met. On the other hand, if only spouse A is obligated on obligation X, and only spouse B is obligated on obligation Y, then obligation Y is not a refinancing under § 1003.2(p). See § 1003.4(a)(3) and related commentary for guidance about how to report the loan purpose of such transactions, if they are not otherwise excluded under § 1003.3(c).

Is the new loan in your first question to finance the construction of homes for resale? If so, it won't be reportable. See § 1003.3(c)(3). If the homes aren't to be built for resale (perhaps they are to be built as rental homes), it would be a purchase loan, not a refi, since the initial loan was not dwelling-secured.

In your second question, what business are A and B in?

The first loan is for construction of an apartment complex.

Second loan. Thanks for the clarifying questions-- I need to restate some facts. Loan was to Biz A LLC, which person A and person B were both a part of. New Loan is to Biz B LLC, which only person B is a part of.

So it seems like a purchase-- essentially Biz A LLC is selling to Biz B LLC. And while one of the owners is common to both, the business entities are different.

Does that sound more like a purchase?

Yes, it would be a purchase since you don't have any of the same borrowers (the businesses) on the prior loan.