Construction Only loans

We are having a difference of opinion on whether or not "spec" loans are HMDA reportable if we are not doing perm financing. Any thoughts?

If it's only for the construction of the spec home it is not HMDA reportable.

I posted a similar question recently - 'spec' homes that are not sold by builder - we had to renew - they are temporary in nature because the end financining will be obtained when the 'spec' house sells; the intent of the renewal was not permanent financing. I feel these loans are not HMDA reportable because HMDA data is to show whether financial institutions are serving the credit needs of the neighborhoods and communities. Clearly the renewal of EMPTY 'spec homes' does not serve the credit needs of the neighborhood & community. Anyone in my court?

"...The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term ..."

The sale of the home is not "permanent financing of a much longer term". I think they are reportable. The reason the original spec loan wasn't reportable wasn't because you anticipated long term financing, it was because it was a construction only loan. I try to stay away from the philosophical part and simply report what the examples say you should report.

???we have designated these loans to be TEMPORARY in nature - ie - a future event will payoff the loan - what is the driver of HMDA reportable loans? It's not term - short term can be reportable; it's not maturity - we could have a bridge loan that needs to be renewed because of a delay in closing - it would be refinaced and STILL not be reportable....same thing could be true of a construction loan - So what is the driver - is it intent? purpose? and could you not theoretically have a long term construction loan (the Safety and Soundness guys might not like that) I'm just saying we do not consider these permenant loans - the example in the commentary states that a . These temporary loans will be paid off when an event occurs - the house sells.

I would leave a builder spec home as unreportable even when extended to allow more time for sale unless things changed dramatically and it was turned into a mini-perm with amortization (as one example).

If you "renew" a temporary construction loan, you are "refinancing" it, right? (I may well be wrong here, if so, i want to learn from my error.) A dwelling-secured loan that replaces a dwelling-secured loan is reportable. That leaves the temporary financing question. If the intent is to pay off the loan by the sale of the house, how does the refinance qualify as temporary financing that anticipates long term financing?

You reference a "future event"......i don't see how that matters. Not trying to be sarcastic here, but the commentary doesn't say "designed to be replaced by a future event", it says "designed to be replaced by FINANCING of a much longer term".

Like i said, maybe (with Kathleen agreeing with you, it's probably more like "definitely") i'm wrong. I know the term "renewal" in general is not a term i use often and may not understand properly. Like you i'm sure, i am trying to learn as i go.

You also have to look at how the extension of the date takes place. Many banks modify the spec loan to extend the date to allow more time for sale. I should have included that in my statement. That make it easy.

But even with a new note, it is still a builder spec loan with a short term extension to allow sale. Since there has been no "purchase" financing here, these generally are left as temporary unless, as I mentioned, they get financed into an amortizing term note.

Builder spec loans are just a different kind of animal.

Our institution has always considered construction-only financing for contractor "spec" purposes as temporary financing and thus have not reported. We go by HUD's literal guidance that LoanARanger provided above regarding construction loans not being reportable. I agree that it seems to conflict with the guidance also provided by HUD that a loan is considered "temporary" if it is designed to be replaced by permanent financing; however, did HUD mean that is the only example of a loan considered to be "temporary" or just one example they chose to list....?

The spec homes are construction only financing, thus qualifying as temporary. A radical change in the financing can trigger reporting, but short term extensions generally will not. The regulators tend to treat them that way as well. It is the nature of spec homes.

But we wary of terming them out because they don't sell. You start to cross over out of construction financing.

So just to be clear, in the case that the builder "buys" his spec house to hold as a rental and we finance it with a permenant loan, this is coded as a purchase not a refi, correct?

Yes.