"exclusivity" of exclusively to build a house sell

Posted By: HMDAHamsterWheel

"exclusivity" of exclusively to build a house sell - 04/20/22 10:43 PM

"A construction only loan or line of credit is considered temporary financing and excluded under Regulation C if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale."

The phrase construction only loan exclusively to build a house for sale is all over the place... But what about the lot? The builder has to buy a lot or if they own it already refinance a lot loan to build the house for sale....Buying a lot or refinancing a lot would mean the funds are not "exclusively" used for building a house to sell....

1. Wouldn't a builder getting a loan to buy a lot and to build a dwelling for sale still be excluded?

2. Would building a house for sale...and also paying off say credit cards also be excluded from reporting? Paying off credit cards is excluded from a business purpose HMDA transactions since it's not to purchase a dwelling, refi a dwelling or make home improvements... So why would adding an additional excluded transaction to a builder to sell loan make it not an excluded transaction?...

3. Is the "exclusivity" really just so if something additionally being done with the funds that would make it HMDA reportable (dwelling purchase, refi or home improvements) doesn't prevent the loan from reported?...

4. It also says to a person in this exclusion. We can use this for entities too, right?

To be reportable for HMDA a business purpose loan has to be a home purchase, refi of a dwelling or home improvements...so it doesn't make sense to me that adding additional funds (that would be excluded for HMDA reporting)to a construction loan would make it reportable....

Am I over thinking this? I was told a long time ago that with HMDA you need to throw all logic and common sense out the window...But I still want to make sense of this....

Has anyone had experience talking with the CFPB saying they are not reportable or anything?
Posted By: Dan Persfull

Re: "exclusivity" of exclusively to build a house sell - 04/21/22 01:03 PM

#1 -3. There is no longer a "majority use" rule in HMDA. For mixed use loans you follow the waterfall - purchase, refinance, home improvement & other (consumer purpose loans). If the use of the funds fall within an allowable exemption then it would be exempt.

#4 - A business entity would be a non-natural person.
Posted By: HMDAHamsterWheel

Re: "exclusivity" of exclusively to build a house sell - 04/21/22 05:27 PM

that didn't really answer any of my questions...
Posted By: Dan Persfull

Re: "exclusivity" of exclusively to build a house sell - 04/21/22 08:08 PM

How did it not answer your questions?
Posted By: Compliance NABW

Re: "exclusivity" of exclusively to build a house sell - 04/27/22 06:39 PM

Assuming you are talking about a spec home build and sale scenario, this is my understanding:

1. Yes, that would still be excluded. A lot isn't a "dwelling" under HMDA, so the purchase of it is irrelevant. For HMDA purposes, the funds are to construct the home for sale.
2. If I am following you correctly, a borrower gets a loan to both pay off credit cards and build a house for sale. You would have to determine whether the loan is primarily for a business purpose (if credit cards were consumer), if so, then I do think it would be excluded. Similar to the lot purchase, the payoff of credit cards is excluded because you have a business purpose "Other." For HMDA purposes, you are looking at the rest of the funds to build the dwelling for sale.
3. That is how I understand it, yes. Kind of a unique scenario that the CFPB probably didn't envision to do otherwise. Creditors usually would not mix doing a construction loan that had a draw schedule and inspections, etc. with funds used to do other things like payoff credit cards. It would mess with the LTV calculations and giving draws for work performed.
4. As Dan noted, yeah, person here can be a business entity.
Posted By: Dan Persfull

Re: "exclusivity" of exclusively to build a house sell - 04/27/22 07:39 PM

Everything described in 1-3 is a mixed use loan. So as I said, since there is no longer a "majority use of funds" rule you follow the loan purpose waterfall and if any of the loan proceeds fall within one of the categories it's reportable. If any of the proceeds fall within one of the exemptions it is exempt.
Posted By: Compliance NABW

Re: "exclusivity" of exclusively to build a house sell - 04/28/22 03:57 PM

Yes, agreed. Basically what my post hashed out. Although there is no "majority use of funds," there is primary purpose to take into consideration if the mix is between business and consumer.