HMDA Coverage Question

Posted By: Sheba

HMDA Coverage Question - 02/27/20 02:50 PM

I have a loan to a commercial company. The funds are going to be used to remodel the business owner's primary residence. The home is used as collateral. The home is owned by the business owner and not the company. The loan has been set up as a commercial loan. Is this HMDA applicable? I am thinking no, but want to be sure. Thanks for the assistance.
Posted By: Skittles

Re: HMDA Coverage Question - 02/27/20 02:59 PM

In my opinion you have a HMDA reportable loan. The proceeds are being used to improve a dwelling and the loan is secured by that dwelling. Unless this is a temporary loan I would report it.
Posted By: Sheba

Re: HMDA Coverage Question - 02/27/20 03:04 PM

Thanks Skittles. Any opinion on what we select for occupancy type? We were stuck on whether we could use #3 Investment Property if the company did not own the dwelling.
Posted By: Dan Persfull

Re: HMDA Coverage Question - 02/27/20 03:09 PM

Assuming the "business owner" is not a borrower then I would agree with the investment property designation.
Posted By: Skittles

Re: HMDA Coverage Question - 02/27/20 03:10 PM

From Reg C - and I would opt that it is #1 if the owner of the property (individual) is also living in the property.

6. Owner Occupancy. Indicate whether the property to which the loan or loan application relates is to be owner-occupied as a principal residence by entering the applicable Code from the following:

Code 1--Owner-occupied as a principal dwelling

Code 2--Not owner-occupied as a principal dwelling

Code 3--Not applicable
Posted By: #12

Re: HMDA Coverage Question - 02/27/20 03:27 PM

The regulation says:
"(6) Whether the property identified in paragraph (a)(9) of this section is or will be used by the applicant or borrower as a principal residence, as a second residence, or as an investment property."

Also see page 75 of the Small Entity compliance guide. Occupancy is related to the borrower not the owner of the property. It should be option 3 in this case.
Posted By: Dan Persfull

Re: HMDA Coverage Question - 02/27/20 03:28 PM

OOOPs. I agree with Skittles. The little tidbit that occupancy now refers to the '"owner" and not the borrower escaped me in my haste to answer.
Posted By: #12

Re: HMDA Coverage Question - 02/27/20 03:29 PM

Skittles, I think that is old information.
Code 1 is principal residence
Code 2 is secondary residence
Code 3 is investment property
Posted By: Skittles

Re: HMDA Coverage Question - 02/27/20 03:29 PM

I had to go to the regulation to verify - I knew something had changed, but not sure which way it went.
Posted By: #12

Re: HMDA Coverage Question - 02/27/20 03:36 PM

Wait, Skittles and Dan. What am I missing here? I went to the regulation, and it clearly states occupancy refers to the borrower, and has since the 1/1/18 changes.
Posted By: Sheba

Re: HMDA Coverage Question - 02/27/20 04:01 PM

Hi #12, This is the point of reporting where I was confused. The business itself did not own the property. One of the business owners owns the property. The loan is to the entity, but all funds are for the remodel of business owner's primary residence. This isn't what I would consider to be a investment property for the entity.

However in the Appendix I, pg. I-27 , section 1003.4(a)(6) states that a property is an investment property if the borrower does not, or the applicant does not, or will not occupy the property. It goes on to say that the section requires a FI to identify a property as an investment property if the borrower or applicant does not or will not occupy the property, even if the borrower or applicant does not consider to property as owned for investment purposes. However the example afterward speaks to the entity having purchased (implication owning) the property.

That is were I struggled.
Posted By: #12

Re: HMDA Coverage Question - 02/27/20 04:21 PM

There is no good answer for this field in this situation. To me, you have to report it as a 3, as a business entity can't have a principal or secondary residence. That leaves investment property by default. I understand it doesn't fit, but the reg clearly states that you report occupancy based on borrower or applicant. There should have been an NA option given in the reg, but there wasn't...so...
Posted By: Dan Persfull

Re: HMDA Coverage Question - 02/27/20 04:23 PM

5.14 Occupancy type
A Financial Institution reports the occupancy type for the Identified Property, using one of the
following:
1. Principal residence. An applicant or borrower can have only one principal residence at a
time. However, if an applicant or borrower buys or builds a new Dwelling that will become
the applicant’s or borrower’s principal residence within a year or upon the completion of
construction, the new Dwelling is considered the principal residence for this data point.
Comment 4(a)(6)-2. For purchased Covered Loans, a Financial Institution may report the
occupancy type as “principal residence” unless the loan documents or Application indicate
that the property will not be occupied as a principal residence. Comment 4(a)(6)-5.
2. Second residence. A property is a second residence if the property is or will be occupied
by the applicant or borrower for a portion of the year and is not the applicant’s or borrower’s
principal residence. For example, if a person purchases a property, occupies the property for
a portion of the year, and rents the property for the remainder of the year, the property is a
second residence. Similarly, if a person occupies a property near his or her place of
employment on weekdays, but the person returns to his or her principal residence on
weekends, the property near the person’s place of employment is a second residence.
Comment 4(a)(6)-3.
3. Investment property. A property is an investment property if the applicant or borrower
does not occupy the property. For example, if a person purchases a property, does not
occupy the property, and generates income by renting the property, the property is an
investment property. Similarly, if a person purchases a property, does not occupy the
property, and does not generate income by renting the property, but intends to generate
income by selling the property, the property is an investment property. Comment 4(a)(6)-4.
If a corporation purchases a property that is a Dwelling and uses it for the long-term
residence of its employees, the property is an investment property, even if the corporation
considers the property as owned for business purposes rather than investment purposes,
does not generate income by renting the property, and does not intend to generate income
by selling the property. If the property is for transitory use by employees, the property
would not be considered a Dwelling. Comment 4(a)(6)-4.
Posted By: Sheba

Re: HMDA Coverage Question - 02/27/20 04:35 PM

I like perfect matches, but sometimes we just have to settle because every possible option is not always covered. So we will go with #3, the investment option because it is the best option that we have.

Thanks to all of you for your words of knowledge and advice and even more for your time. Love this site always for the discussion and the freedom to say "I have read the regulation and I am sooo confused". I always leave with hope. Have a great day!
Posted By: #12

Re: HMDA Coverage Question - 02/27/20 04:35 PM

3. Investment property. A property is an investment property if the applicant or borrower
does not occupy the property.

There's our answer. smile From the small entity compliance guide.

I also found the citation that Skittles posted. It was from old Appendix A, but that was removed from the regulation effective 1/1/19.
Posted By: David Dickinson

Re: HMDA Coverage Question - 02/27/20 05:51 PM

It is #3. The title is poorly worded, but if the occupant doesn't fit 1 or 2, report 3.
#3 is to be used anytime there is a 3rd party (non-borrower) pledge.
Posted By: Sheba

Re: HMDA Coverage Question - 02/27/20 09:38 PM

Thank you, David.