HMDA - Demolish Build New

We did a loan last year for which the funds were to payoff an existing loan at another institution and the additional funds were being used to demolish and construct a new luxury home. We provided the funds to payoff existing loan and provide a construction permanent loan for the new house to be build. Would that be a refinance loan in the old HMDA definition or construction / perm loan.

Under the old rule? Home improvement, which trumps refinance.

Swiggles - I would have coded this as a purchase transaction, which trumped both of the other choices under HMDA pre-2018, since this was ground-up construction. It's an entirely new home to me which is not home improvement.

In past BOL discussions....unless I am losing my mind.....such a project was deemed home improvement.

Swiggles, you aren't losing your mind. The challenge is that some reported it as a purchase and some report it as a HI loan. I've always taken the approach that if part of the existing home is being used, such as the foundation or one or two rooms (like my in-laws did), then that would be a HI loan. If, however, the entire dwelling is raised and they start from scratch for the new one, then I view that as an initial construction. Therefore, I would code this as Moman did - a purchase.

I was able to find this older thread where Kathleen, David and Dan (all who know HMDA extremely well) also called this a purchase. https://www.bankersonline.com/forum/ubbthreads.php/topics/1466838/Tear_Down_Rebuild.html

Thank you all.

On a similar note - we have a customer (LLC) that purchased a home with cash in June 2018. The LLC is now requesting a loan to demolish the existing house, construct a brand new house and convert the loan to perm status upon completion of construction. The home will become the primary residence of the managing member of the LLC.

Question - since the LLC already owns the subject property, will we still report the construction/perm as a Purchase for HMDA purposes, or if not, how would it need to be reported?

Thanks in advance for any guidance on this situation.

construct a brand new house and convert the loan to perm status upon completion of construction

I am assuming this is a 2 phase (closing) transaction.

The construction loan (phase 1) would not be reportable.

The permanent loan (phase 2 refinancing the construction loan) would be reported as a purchase.

No. This is one loan, int only for 18 mos to demolish old house and build new house, then remaining seven years w P&I.

This is one loan, int only for 18 mos to demolish old house and build new house, then remaining seven years w P&I

Const/perm loans are reported as a purchase

Okay. That's what I thought, but wanted to be sure since the LLC already owns the property free and clear. Was second guessing myself.

Thanks Dan! :-)

The majority of home construction is done on land already owned.

Related scenario. We made a construction/perm loan to someone to complete a home that was never finished (after being started in 2013). The home only ever had a foundation, rough plumbing, and block walls - no roof. I'm unsure if this would be a home improvement loan or a purchase since the shell would never have been considered a home without a roof. Thoughts?

You are NOW making a new loan to complete the home? If so, it would be a purchase, not home improvement. You can't improve an unfinished home.

Agreed. Thank you for your input.