I made a ruling and now I'm second guessing myself. We have a borrower who has a revolving line of credit that he uses to purchase rental properties. Then, after he purchases a rental property using the RLOC, he obtains a long term loan on the property. He uses the proceeds of the long term loan to pay down (sometimes to zero), the RLOC.

The long-term loan isn't a purchase money loan because the funds didn't go to purchase the dwelling. The funds paid down the RLOC.

The long-term loan isn't a refinance because the funds did not pay off a dwelling-secured loan.

Am I right?

FWIW, I agree. I don't see it as a purchase or refinance.

To be a refinance it has to replace and satisfy a dwelling secured loan. The LOC is just being paid down and even when it goes to zero it still can be used in the future.

That is my line of thinking too. It just seems like this loan should be reported........

Revolving lines of credit are always exempt from HMDA. That being said, the purchases would not be reportable due to the borrower using a RLOC to make the purchases. You could look at this several different ways, If he is using the long term loans to pay off the ROLC on each purchase, then I see it as the initial purchase (using the ROLC) as a temporary transaction, the long term loan paying off the ROLC would be the "first term out" from the temporary transaction, making it a reportable purchase. On the other hand, if he isn't paying the RLOC off totally on each transaction then I would look at it this way, if he used the long term loan to pay the ROLC down (satisfying the entire purchase cost of the dwelling) I would still consider it to be a first term out "perm phase" reportable as a purchase.

Basically the way I see it is this, he is using the RLOC for temporary purchase transactions, then he is seeking "perm financing" (the long term loans) which should be secured by the dwelling that was purchased, if this is the case I see each "perm" loan as being a reportable purchase for HMDA.

Even if he doesn't pay the RLOC off totally, he is still taking a temporary transaction and replacing it with the long term permanent financing secured by the dwelling that was purchased, making it the first term out from the temp phase, thus reportable as a purchase.

Use your own discretion, but as I see it, they are all perm phase reportable purchases as long as the long term loans are secured by the dwelling/s that was purchased using the RLOC which I couldn't really see it any other way.

LOCs are optional reporting, not exempt.



Can you provide a citation to back up this logic? The GIR only references the "take-out" of construction loans being reported as purchases:

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

Most of the "grey" areas are left for the institution's discretion, you come to a determination, you stick with the determination and you stay consistent on every like transaction.



These are my opinions, take them how you want...

but exempting countless purchase transactions isn't a smart move, again, my opinion

"Let me ask you this, Say Your institution makes a Purchase/Rehab loan, 6 month note, interest only and are planning to "refi" it at maturity based on a 20 year amortization. Would you not consider the initial loan to be temp in nature? And would you not code the "perm" loan a purchase?"

It definitely is temp financing, but there isn't anything in the regulation that supports that the purpose of the temporary loans should be the reported purpose of the perm loans, other than construction perm loans.

There are some that will follow the same logic, but others who reject it because there isn't similar guidance for other situations. Search the threads for several discussions regarding temp HI loans being refinanced and how to report the purpose. Overall, I think the majority would report as refinances.

Back to the original question, if you were to purchase a home using a LOC, you wouldn't report the purchase (assuming you opt not to report). Paying down the LOC doesn't replace and satisfy a dwelling secured loan (assuming the LOC is even dwelling secured) so the perm loans wouldn't be a reportable refinance.

I agree with the others stating that neither the LOC or the perm would be reportable.

Not "countless" here. This is the first scenario like this I have seen.

I've personally seen quite a few, but, our LOs are a kind all of their own LOL.


The way I read it was, the borrower does this on a regular basis.
But, at any rate the main key is to stay consistent in whatever you decide is the best way to report or not report, but, I do, in my opinion, see these long term loans as a first term out from a temp purchase, I wouldn't chance not reporting them and the only definition it fits is a purchase, as far as refi goes, for coverage purposes the purchase transaction has to have already happened (reported) , in all thing I have seen im still sticking to my guns on the perm loans are reportable purchases.

I was hoping a few of the veterans would pop in and provide their opinions as well

I don't understand why you're mixing coverage and reporting definitions for refinances.

The is Ludacris! If the purpose of the temp loan was home improvements then the refi would be coded as such.

The rule of trump is as follows: Purchase is number one, Home Improvement is next, Refinance is last.

If the temp purpose was a purchase, the perm is coded purchase

If the temp purpose was for Home Improvements, the perm is coded H/I

The refi of a temp loan is driven by the purpose of the temp loan, period.

In what galaxy do they code a refi'd temp loan a refi?? The loan was temporary for a reason, most of the time it is a purchase/rehab, it is home improvement draw note or LOC etc.


The only scenario I can think of the a temp loan's perm loan would be coded a refi is, if they requested a 6 month note refinancing from another lender, to only refi again with yet another lender a maturity for a much longer term.

Now I have not personally seen anything like that, and see no reason why anyone in their right mind would want to do that.

A refi is simply a dwelling secured that replaces a dwelling secured to the same borrow not for the purpose of purchase or home improvements, when purchase and H/I come into the picture it changes the ball game. NOT TO MENTION A REFI IS THE LAST OPTION IF IT DOESNT FIT PURCHASE OR HOME IMPROVEMENTS.

I can argue my points all day about this


the whole point is, if there were something in the Regulation that covered every single possible scenario then what in the heck do institutions need people like us for?

If the Regs were that cut and dry there would be no need for Compliance Officers

Not even ONE regulation that I have seen is cut and dry, they all have grey areas, they all have room for interpretations, and they all have room for mistakes and misinterpretations.

The proving point to that is, my last HMDA exam was schooling the examiners, the point of that is not to say I am more knowledgeable than the next person, but simply everyone reads and interprets things in their own way. But, when the examiner says you are wrong, you must prove them otherwise and in order to do that you must not be blind to the grey areas.

If it was all cut and dry and straight forward and to the point there would be no room for individual institutional interpretations , there would be no arguments, no questions and no need for forums like this

"If the purpose of the temp loan was home improvements then the refi would be coded as such."

Coded as such what? As home improvement? Again, i (and many others) would argue differently.

"The refi of a temp loan is driven by the purpose of the temp loan, period." Ok, please provide me the citation for that opinion.

"Not even ONE regulation that I have seen is cut and dry, they all have grey areas, they all have room for interpretations, and they all have room for mistakes and misinterpretations"

doesn't seem to jibe with:

"The refi of a temp loan is driven by the purpose of the temp loan, period."

that isn't even the point I was trying to make, the point i was getting at is, refi shouldn't have even been a question in the first place.

obviously reporting def. and coverage def. are two different definitions, I was trying to make a point that refinance made no sense any way you look at it.

given the question at hand and the scenario involved, the only logical coding for the long term loan is purchase, and that was my point, I personally would report them as purchases, I would not omit them.

but the subject kept being thrown towards Refi, and in this situation it doesn't even apply.

Absolutely no one is arguing that a refinance with new money for another HMDA reportable purchase (purchase or home improvement) would be reportable as a refinance. What we're arguing is that a temporary home improvement loan later refinanced into perm financing is NOT reportable as home improvement unless there are additional disbursed funds with the new loan that go for more improvements. Again, we've all seen the argument of carrying the logic over from the language that discusses classifying the perm financing that replaces a construction only loan as a purchase as the logic to do the same type of thing on temporary HI loans and the like later permed out......but you seem to be saying we're all crazy if we don't care to follow that logic--even though the GIR is silent on the issue for those types.

Why wouldn't refi be a question in the first place? If you hold to the belief that the GIR's language about reporting perm financing that replaces a construction only loan as a purchase as ONLY applying to that limited circumstance, why wouldn't refinance be in play?

IT'S DRIVEN BY THE RULE OF TRUMP

PURCHASE
HOME IMPROVE
REFI


IN THAT ORDER


So I will ask you the same question, You have a purchase/rehab temp loan, on the perm loan how would you code it? A purchase, a H/I or a Refi?


My answer is Purchase, if yours differs I am done wasting my breath

"In what galaxy do they code a refi'd temp loan a refi??"

My galaxy, for one, so long as there is no new money for purchase or improvements.

Let me ask you this: Applicant gets a 6 month home improvement loan; temporary financing to be replaced later with perm financing. Perm financing loan comes around and simply refinances the temporary loan; no new money. You classify as HI, even though none of the funds for the new loan go towards home improvement? (Again, i've seen and understand the argument to carry over the construction-perm financing argument. I--and i think plenty of others--simply don't agree with it. If you do...great......you just seem to be implying we're all crazy for thinking otherwise.)

no see we some how got mixed up here, if you are arguing about eh construction only scenario you are arguing to the wrong one. I NEVER said it only applies to that limited circumstance, in fact I was saying the complete opposite

No, i'm saying that i DO think it only applies to that limited circumstance. I'm a strict constructionist when it comes to regulations.......i read them the way they're written, and don't try to interpret things into them.....and i see nothing in the GIR that says "use this same logic we're using on construction loans later permed out to report your temporary loans for purchase or home improvement as well". Again, if you want to be a broad constructionist and interpret what they "meant", that's fine........

But what scenario have you seen where a Temp loan is refi'd and remains a refi? like what I am asking here is, I cant think of one scenario where our particular bank would make a temporary loan that wasn't for purchase or improvements.

at any rate lights are shutting down, we can pick this back up tomorrow


I do believe some where in the mix the communication go mixed up , my argument was that construction perms are NOT the only circumstances a temp's perm phase is coded purchase

No one is arguing the "rule of trump" either......a temporary home improvement loan later refinanced with NO NEW MONEY doesn't meet the home improvement test...none of the funds are being used for home improvement.

"I do believe some where in the mix the communication go mixed up , my argument was that construction perms are NOT the only circumstances a temp's perm phase is coded purchase"

And i'm just telling you that many of us do believe that the only circumstance where the perm phase is reported based on the purpose behind the original temp loan is that spelled out in the GIR: where a construction only loan is replaced by permanent financing of a much longer term.

"But what scenario have you seen where a Temp loan is refi'd and remains a refi?"

Customer gets a $10,000 home improvement loan, 6 months, temporary financing. Comes back in 6 months and gets a 5 year loan to replace the temp loan. That's a refinance and "remains a refi" til it's paid off.