We have the FDIC examiners on site right now and we have a disagreement on the purpose of a loan. Need to know if I'm thinking correctly or if I should just shut up.

We made a single pay loan to do some improvements to an apartment building. (Loan officer called it construction on memos but it is not construction from the ground up by any stretch of the imagination) The single pay note was paid off and replaced with a new 30 year note. Both loans are secured by the apartment building. We coded as a Refi. Examiner says it should be purchase. I disagree because the construction was on the first loan. Second loan is simply terming it out. I also think if it said home improvement instead of construction they wouldn't have even asked the question. Any thoughts?

Does the examiner understand that the first loan was not ground-up construction?

I've expressly told them that it was more of a remodel and that it was not at all a ground up construction. They're just hung up on the idea that the first loan was construction purpose so the second loan is 'perming out the construction' which I disagree with. It wasn't agreed to on the first loan that we would perm it out. It's a separate deal.

Sounds like they are getting hung up on this section of the GIR:

5.
Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regulation C and is not reported.

However, I agree that this only applies to initial construction loans, not to home improvement loans that are structured as construction loans. I would be going above the examiner's head if they won't budge.