HMDA & Refinance to purchase farm land with house

We have a loan where a customer refinanced their existing loan, took $100,000 cash out (total loan amount $275,000) and used that cash out as a down payment on 100 acres which included a farm house.

My loan for $275,000 wouldn't be a purchase, right? The 100 acres with farm house is mainly farm land. It would either be a refinance or cash-out refinance depending on whether we priced cash-out loans differently, correct?

The other $175,000--what purpose is associated with it? Consumer? Or ag. or business?

Consumer, refinanced their existing home mortgage

Sounds to me then like you have a purchase, as it still trumps refi, and part of your money is purchasing a house, and the primary purpose of your loan isn't ag. purpose (which could exclude it altogether).

Agree. If $1 is purchase, then it's a purchase for HMDA. Majority never wins when it comes to HMDA reporting.

I think the OP is asking if the ag property exemption for HMDA would require the loan be reported as a refi because the property being purchased is primarily agricultural. It's an interesting question. I would still consider it a purchase, but I would be interested to get a guru's take on it.

That's why i asked the question about the purpose behind the original loan....if $175,000 is consumer purpose, then the $100,000 used to purchase an ag. property wouldn't amount to a majority of funds--and there was no indication that the property being purchased secures this loan, so i don't see an avenue to exempt it as ag. purpose.

Glad you questioned this TMatt. Here's the original post:
We have a loan where a customer refinanced their existing loan, took $100,000 cash out (total loan amount $275,000) and used that cash out as a down payment on 100 acres which included a farm house.

IF the customer is purchasing a farm, then it is exempt from HMDA. If they are buying a "large lot" that won't be used for agricultural purposes, then it's not a farm and not exempt.

Sooo, the question is "what will the customer be using the 100 acres and house (let's not call it a farm house unless it's a farm) for?

To follow up on my last post: HMDA exempts ALL agricultural loans - whether by purpose or by collateral. The following is from our HMDA training manual - a mixture of regulatory citation and our plain English version of it.

Agricultural (100% Exclusion):

1. Loan Purpose:
Do not report any applications for loans or lines primarily for agricultural purposes.
[§1003.3(c)(9)] A bank may rely on §1026.3(a) comment #8 (Truth in Lending) for additional guidance on loan purpose. An institution may use any reasonable standard to determine the primary use of the property. An institution may select the standard to apply on a case-by-case basis. [Commentary to §1003.3(c)(9) #1]

2. Collateral:
Do not report any applications for loans or lines ...if the loan or line of credit is secured by a dwelling that is located on real property that is used primarily for agricultural purposes (e.g., a farm). An institution may use any reasonable standard to determine the primary use of the property. An institution may select the standard to apply on a case-by-case basis. [Commentary to §1003.3(c)(9) #1]

David, you agree though in this case that we have a mixture of funds: $175,000-consumer purpose and $100,000-(possible) ag. purpose? And even if the $100,000 is for ag. purpose, the $175,000 worth of consumer purpose funds would trump it?

The majority of the 100 acres is farmland that the borrower will farm. Not sure what the borrower will do with the farm house but the land is definitely going to be farmed.

The land and home being purchased do not secure your loan Red Raiders...correct?

And I think it is definitely HMDA reportable but I wasn't sure if the ag purpose of the $100,000 would keep it from being a HMDA purchase or if it did and therefore it is a refinance.

No - the new land and home will not sure this $275,000 loan. It is going secondary market and only the borrower's primary residence will be collateral.

I think it should be a purchase. The ag exemption only applies to reportability and not to loan purpose, as far as I can tell.

IMO you have a (primarily) consumer purpose loan that would properly be classified as a purchase for HMDA.

Secondary market is probably treating this as a cash out refi.
You know the additional cash will be used to purchase land with a dwelling on it.
Unless the borrower has told you that the building will not ever be lived in, I opine you have a purchase for HMDA.

I also agree with y'all. Primarily consumer purpose loan with cash out to purchase a dwelling [as far as we know habitable] = Reportable purchase.

Thanks for the responses, everyone. Makes more sense now.

Comment #1 to Section 1003.3(c)(9) states an institution does not report a closed-end mortgage loan or an open-end line of credit used primarily for agricultural purposes. A loan or line of credit is used primarily for agricultural purposes if its funds will be used primarily for agricultural purposes, or if the loan or line of credit is secured by a dwelling that is located on real property that is used primarily for agricultural purposes (e.g., a farm)

Since this is loan is primarily to refinance the existing debt ($175,000 vs. $100,000) AND because the farm is not securing the loan, it makes sense to call it reportable.

However, we are not to report dwellings on ag property. Therefore, I have a difficult time calling this a purchase because that house is exempt from HMDA. I asked the CFPB a similar question. The question I presented was this:
I live on a farm but am buying a house in town (retiring). The loan will be secured by the farm land & house on the farm as well as the new home in town. The The CFPB representative said there is no definitive answer and they could go either way.

I'm leaning toward disregarding the purpose of the cash out (purchase) and calling it a refinance. The purpose of the house is exempt.

Thoughts?

You gotta love a rule where even the rule writers don't know for sure what they mean.

Under the "old" rules the purchase of property primarily used for agricultural purposes that had a dwelling located on the property was not a home purchase for HMDA purposes. Under the new rules property used primarily for agricultural purposes with a dwelling located on the property is exempt property (if securing the loan).

I would have to agree this would be a refinancing vs. a purchase.

I think though you can backtrack this scenario to 2017 or prior. Let's imagine that in 2016, a borrower refinanced his home with cash out to purchase a 100 acre farm with a farm house, secured only by his current home. Would we have reported this as a refi in 2016? If not, what has really changed in this scenario? I know things have changed in the ag. exemption (even if money isn't used for an ag. purpose, if the property SECURING the loan is primarily ag. purpose, then it's exempt), but they don't seem to touch this scenario.

Let's imagine that in 2016, a borrower refinanced his home with cash out to purchase a 100 acre farm with a farm house, secured only by his current home. Would we have reported this as a refi in 2016?

Yes because in 2016 the purchase of property primarily used for agricultural property was not a home purchase even if it had a dwelling located on it regardless which property would secure the loan.

The purpose of this loan was to refinance the existing obligation and get cash to purchase property primarily used for agricultural purposes. I don't see that as a home purchase even if a dwelling is located on the property.

Ok Dan i can buy that logic...in that case then, this isn't some sort of new scenario. You would have reported as a refinance in 2016 and you would report it as a refinance in 2018 too.

They leave a lot open for interpretation here.

I suppose it actually does make sense to ignore the home located on the farm and stick with a cash out refi since the farm dwelling isn't a 'dwelling' for HMDA purposes. Egads.

Joker.....if the exact scenario had happened in 2014, would you have reported as a refi? I see nothing new or different here on this particular scenario than if the loan had happened in 2014. If you are answering "refi" now, you should have been saying "refi" in 2014. Just sayin.

Yes, because farm house acquisitions were not reported at all. Not really sure I ever had the instance come up!

On the other hand, if all my borrower told me was I'm buying a house and land, I'd report it then and now as a purchase...so I think you could argue it either way if you don't go into too much detail

The ag exemption doesn't appear to be tied to the definition of home purchase the way it was in 2017 and prior. It also doesn't modify the definition of dwelling. All the ag exemption does is exclude a loan that is primarily ag purpose or secured by property that is primarily used for ag purpose from reporting. We agree that the ag exemption doesn't apply in this case since the primary use of funds will be for a refinance and the loan isn't secured by the farm.

In my opinion, the farm meets the definition of a dwelling, because the ag exemption doesn't modify the dwelling definition. So you have a dwelling secured loan that is partially for the purpose of purchasing a dwelling. So I would still say a purchase in this situation.

I'm torn on this. Because it's a refinance of their current home, I think it's reported. I don't think it's a purchase, because that part of the purpose is exempt. I'm leaning toward calling it a "refinance". If you agree, I would document what I said above to support the decision.

Then I would close the file & move on.

I agree that this is a very strange information, and that there is a lot of gray area. I could argue reporting either way, so as with so much with HMDA, document your decision and if you happen to run into this situation again, be consistent.

You can even make the argument to exempt this......if you have a loan that is exempt as temporary financing, you exempt it, even though the purpose behind the loan would make it reportable otherwise. IOW, an exemption is an exemption is an exemption--once it's exempt, it's exempt and you're done. If you had an application to purchase a structure used as transitory housing, buy a 100 acre farm with a farm house, buy 200 acres of bare land..........and buy 4 rent homes, you wouldn't report that (at least, i don't think i would).

^^That's just another way to look at it....i'm still torn too. They should explain better when you have multiple, competing purposes, some of which are reportable and some of which are expressly exempt.

In this particular case you would have no basis to not report [exempt it] since if nothing else, it does involve a refinance of their non-farm dwelling.

I just don't see a lot of clarity in the regulation on how to handle a loan with one (or more) reportable purposes and one (or more) exemptable purposes.

The exemption is for loans where the primary purpose is ag. This loan's primary purpose is not ag, it is to refinance a dwelling, therefore, the exemption doesn't apply.

I'll state my case a slightly different way.
The majority of the funds involve the refinance of the PR. How can it not be reportable in some manner?

Yeah...i forgot that's how that read...scratch what i said.

I agree. That's why I stated "Because it's a refinance of their current home, I think it's reported." in my last post. Then I also stated "I don't think it's a purchase, because that part of the purpose is exempt. I'm leaning toward calling it a "refinance". "

What about a consumer loan that states it is a cash-out refinance for $100,000. The loan officer indicated the loan was for personal purposes. The funds were deposited into the customer's checking account. However, there was a wire that came out of the checking the same day the funds were deposited to a Title Company for $200,000. The loan is secured by their farm. Would this be reportable or is it exempt because it's secured by the farm which includes their dwelling.

It's excluded because the dwelling is located on farm land, if that's the actual purpose of the land.