purchase lot with SFR that will be torn down-HMDA?

Hi - We have quite a few loans to builders who are purchasing a lot with a single family residence on it. The property will be torn down and a new residence will be built on the lot. Are these loans HMDA reportable??

If your loan is funding spec home construction, no.

These funds are just to purchase. They renew the loan for the construction funds.

The intent is not to use the dwelling that currently exists as a dwelling--the intent is to tear it down. There are no additional funds to purchase, refinance, or improve a dwelling. So it is not reportable.

I agree it is not reportable. For HMDA, always look at what it (the land / building) will be once your loan proceeds are applied. Since the existing building will be torn down and nothing rebuilt, then it's a bare lot loan (for HMDA).

This is true for most regulations, except Flood. Flood basically says "until it is torn down, it needs insurance".

David - the intent of the borrower is to build a new property on that land and sell that off. Still not HMDA?

That is spec home construction, which is expressly exempted, thus, my first post about spec home construction.

What is happening is they are getting a loan to purchase the house/lot. Then a new loan is done to finance the construction. The home that is constructed is then sold.
We were thinking it is HMDA because there is a dwelling on the property, even if no one is going to live in it.

But the funds are not used for construction - they are used to purchase the house/land?

The loan to purchase the house/lot isn't reportable for the reasons David and I have stated--the intent is to demolish the house, so the "dwelling" isn't being used as a dwelling.

The new loan to finance construction of the spec home isn't reportable because spec home construction is exempt as temporary financing.

Whether this is done in 1 loan (buy the home and lot, demolish the home, build a new spec home) or 2 loans (first loan buys the home/lot and demolishes home; 2nd loan constructs spec home)......neither scenario includes a HMDA reportable loan.

But the funds are not used for construction - they are used to purchase the house/land?
It's not a house. It's a building. No one dwells there and no one will after the loan is carried out.

In the definition of dwelling, Reg C states "…homes converted to daycare facilities or professional offices"… are not dwellings. [Commentary to §1003.2(f) #3]

If I buy a house and turn it into an office, it's not a house. Likewise, if I buy a house and plan to tear it down, it's not a house.

@David and @raitchjay - Does your opinion on this change for 2018 HMDA reporting standards? I do not see any exemption specifically related to spec home construction. The trigger is whether or not the loan is intended to be taken out by permanent financing. For 2018, a covered loan is reportable, and is defined as a closed-end mortgage loan or open-end line of credit that is not an excluded transaction under 1003.3(c). I don't see any exclusion for under said section for this transaction. As a matter of fact it, this scenario "acts" very similar to what is mentioned in 12 CFR 1003.3(c)(3) Official Interpretation 1(v.) -

Lender A originates a loan with a nine-month term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Under § 1003.3(c)(3), the loan is not designed to be replaced by permanent financing and therefore the temporary financing exclusion does not apply. Such a transaction is not temporary financing under § 1003.3(c)(3) merely because its term is short.

From the April 2017 proposal on HMDA technical corrections:
Comment 3(c)(3)-1 does not specifically address a construction-only loan or line of credit to a person exclusively to construct a dwelling for sale. Construction-only loans or lines of credit to construct a dwelling for sale are not currently reported under Regulation C, and the Bureau did not intend in the Final Rule to expand Regulation C's coverage to include them.

From the September 2017 HMDA final rule:
Final comment 3(c)(3)-2 provides that a construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale and cross-references comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

I forgot to add comment 1003.3(c)(3)-2:
2. Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

I don't see a 1003.3(c)(3) - 2. There is only a .3(c)(3) - 1 in the Regulation. I guess you are taking this from the full Federal Register document, but, regardless, thank you for your input. However, as has been stated in other scenarios in this forum, all of this language seems to point towards "initial" construction of a dwelling. It has been stated many times on here that a dwelling can only be initially constructed once. So, we have agreed before here, from what I remember, that a tear down and rebuild does not qualify as initial construction.

With that being said, I don't really feel these sections apply. This is not a loan for the initial construction of a spec home. It is to purchase a dwelling and then tear down and rebuild for sale. Because a dwelling is being Purchased with a closed-end loan that is not intended to be taken out by permanent financing, then I believe it is a "Purchase" under HMDA, similar to the renovate and sell comment I noted above. If we agree that a dwelling can only be initially constructed once, then a tear down and rebuild is basically a "renovation."

A "dwelling" that is being purchased to demolish isn't a "dwelling" for HMDA purposes. There is no intent to use it as a dwelling.

And the dwelling that will replace it is a spec home...and spec homes are exempted by the language that Adam has quoted above.

I suppose i see the argument you are trying to make.....you are basically considering this a flip (purchase and "improve" to sell). I am not comfortable with that argument, and would look at it the way i have stated.

Try looking at the BOL version of the regulation as 1003.3(c)(3) - 2 is in red: https://www.bankersonline.com/regulations/12-1003-003

For your reference, the September 2017 HMDA final rule can be found here: https://www.federalregister.gov/document...re-regulation-c

I agree with what raitchjay said. Unless you are re-using the foundation/a small portion of the existing dwelling (like my in-laws did to meet the ordnance of their lake association that prohibits certain new construction) - which would then be an improvement of the existing dwelling - a home to be demolished isn't a dwelling for HMDA purposes.

I view the new construction (after a different dwelling is demolished) to be an entirely new dwelling, which will now have its first (and only) initial construction.

I see the argument too, but I wouldn't call it a flip unless part of the prior home was used. Otherwise, IMHO it is an entirely new structure and thus an entirely new dwelling.

Thank you. I see the Official Interpretation #2 on the BOL Regulation link you referenced. I am wondering why that hasn't made it over to the CFPB eRegulation site, as it is not there and that is the Regulation reference I use the most for HMDA and TRID.

I may have been getting a little bit confused with TRID when talking about initial construction. Obviously, for TRID this is a "Purchase" because the real property is being purchased with the funds. However, here is a HMDA thread where some of us same group members are saying a dwelling can only be constructed once and after that anything else done to the dwelling is home improvement - https://www.bankersonline.com/forum/ubbt...rm#Post2152271. I realize that doesn't quite carry over to this particular situation, but I still think there is some value in that understanding here.

Where in any part of the Official Interpretation, the Rule, or the preamble to the Rule does it say the reporting of a dwelling is dependent on what the borrower intends to do with the dwelling? I don't see anything that discusses intent other than when the borrower purchases raw land and intends to build a dwelling on it within 2 years. There is also intent mentioned regarding having a purpose statement of what the funds will be used for. Here the purpose statement would be to purchase a dwelling, tear it down and rebuild. There is still an initial purpose of purchasing a dwelling.

The commentary talks about "dwellings" used for non-residential purposes (i think the examples they give include a building that was once a dwelling being converted to a dentist's office) not being a "dwelling" for HMDA purposes. Demolishing it isn't a residential purpose. Maybe somebody will post it...sorry i can't right now.

I posted that in my last post (12/28). Here it is again:
In the definition of dwelling, Reg C states "…homes converted to daycare facilities or professional offices"… are not dwellings. [Commentary to §1003.2(f) #3]

Here's a motto to remember for HMDA: "Always look at what the building will be once your loan process are applied."

JPC: In this scenario, they are buying a building that will be demolished. Therefore, that building is not a dwelling. In fact, it's nothing - a bare lot. Then they are building a dwelling for sale. That's a spec home and exempt from HMDA by the 9/13/17 final rule.

I don't think converting to daycare facilities applies here. Obviously, if a borrower is purchasing a daycare facility that is in the "shape" of a home (previously it was a dwelling), then it is not a dwelling for HMDA purposes. Makes common sense to me. The borrower is not purchasing a converted facility. They are actually and truly purchasing a dwelling. They just don't think the dwelling is best suited for a flip, so they tear down and rebuild a dwelling that will be better suited for resale. I wonder what the commentary would say if they contemplated that a borrower would purchase a dwelling and then convert it to daycare facilities, rather than just mentioning a dwelling that had already been converted to daycare facilities.

I appreciate all of the input from you on this, @Randy and @raitchjay and @Adam, but I still lean towards calling it a "Purchase." I don't really see much support in 2018 HMDA for "looking at the building once the loan funds are applied." I see that HMDA reporting is necessary when there is a covered loan secured by a dwelling that is located in the 50 states, DC, or Puerto Rico. A covered-loan is a closed-end mortgage or open-end credit plan that is not an excluded transaction under 12 CFR 1003.3(c). So, in this scenario, I have a closed-end loan secured by a dwelling located in the 50 states and I do not see an exclusion under 1003.3(c). So, check, check, and check. The only thing I see that hints toward an exclusion is the spec-home part you have stated previously, however, this is only applicable if one totally ignores the fact that there is already a dwelling on the property that is being purchased with said loan funds.

I've considered the various statements made and I'll probably just have to agree to disagree on this one. Thank you all again for the discussion.

I would argue that purchasing a "dwelling" that is in the "shape" of a home, where the only intent is to demolish it has no residential purpose to it and is not a "dwelling" for HMDA purposes. Would any of us look at it (pre-demolition) and say "that's a house". Yes we would. But it doesn't matter IMHO--Reg. C says (again, IMHO) that it isn't a "dwelling".

The point being made here with the daycare scenario is that just like a dwelling converted to daycare, office or whatever, the intent is not to be used as a dwelling . Neither is a home to be razed. It's not intended to ever be used as a dwelling, therefore it's not a dwelling for HMDA purposes.

Dwelling means a residential structure (whether or not attached to real property) located in a state of the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. The term includes an individual condominium unit, cooperative unit, or mobile or manufactured home.

What about the structure you are contemplating makes it a "residential structure"?

Amend my last sentence to read: "What feature of the structure you are contemplating makes it a 'residential structure'?"

You're free to do just that. You have EVERYONE so far telling you you're wrong. I teach HMDA for the ABA National Compliance School and meet with regulators frequently because of I'm on the ABA faculty. That doesn't make me right, but I'm comfortable I know a lot about HMDA and stand by these opinions.

You said: The borrower is not purchasing a converted facility. They are actually and truly purchasing a dwelling."
As EVERYONE has pointed out, this isn't true. If no one dwells in it, it's not a dwelling. The commentary gives examples of homes that are converted to represent this point. They can't spell out every scenario you'll ever encounter. You need to apply the logic of the regulation.


I made this up to help people understand HMDA in plain English. It's not verbatim from the regulation but it's crystal clear when you look at the examples and read the entire regulation.

You can do what you want, but if you ask for advice and EVERYONE tells you you're wrong, I'd question your position.

Have a great day! smile

Good points @David. I appreciate everyone's opinion. I don't mind "going against the grain" on occasion. A vacation home may not ever be used as a "dwelling" either, but you would still report the Purchase. The initial home is a dwelling that is being purchased. I see nothing that indicates this fact should be ignored and we should just look to the secondary result of doing a spec home.

As an OCC examiner for 6 years or so, I became very steeped in the Regulations and applying them to a variety of individual cases.
A lot of Compliance experts felt a certain way about dealing with and reporting counteroffers under ECOA/HMDA as far as Adverse Action Notices and denial reporting. However, I stuck by my opinion on the matter throughout the years and the CFPB validated my long-time stance and clarified this in the 2018 HMDA reporting standards. https://www.bankersonline.com/forum/ubbthreads.php/topics/2157353/1

Also, there are many experts saying to have dual HMDA lobby notices or other things related to switching over to the language posted in the 2018 standards. Whereas, it seems fairly clear to me to just move over to the 2018 language. 99% of the experts are saying you can't get HMDA data of the website that is referenced in the 2018 language; however, I have personally went to the site and pulled specific bank data. Why is everybody posting and printing in Compliance publications that the data is not yet available? Who knows.

Just trying to say that once I've researched all the applicable Regulations, commentary, faq's, etc., I tend to be very confident in my understanding of the issue and making a decision on it. I've cited Regulatory violations on many occasions and had to stand firm with my evidence to argue with Examiner's-in-Charge , as well as Bank management, Boards of Directors, and Compliance staff.

For the record. No one I know would consider a vacation home anything but a dwelling. They typically aren't transitory housing.

"The initial home is a dwelling that is being purchased."

Which brings me back to my question....how do you justify this statement?

"A vacation home may not ever be used as a "dwelling" either, but you would still report the Purchase."

Why would you report it? Because the borrower would say "i'm purchasing this dwelling as a vacation home" (and who buys a vacation home and NEVER uses it?)....just like they would say "i'm purchasing this lot that has a house on it, and i'm going to demolish the house". You listen to the borrower and go from what they tell you.

For clarification purposes, a vacation home is automatically included in the definition of a dwelling. From the commentary:
"1. General. The definition of a dwelling is not limited to the principal or other residence of the applicant or borrower, and thus includes vacation or second homes and investment properties."

For sure. I was just making a point that it may not really be used as a "dwelling" either. It might just sit there, or just get used as an Air BnB, which could make it exempt under the "hotel" transitory housing language.

@raitchjay - I don't get it. How do I support the statement? The initial home being purchased IS a dwelling. That's what it is, lol. "Dwelling means a residential structure, whether or not attached to real property." The initial home is a residential structure, and there is nothing in the Official Interpretation or Final Rule section-by-section analysis that provides any reason why it would be excluded from being considered a "dwelling." Just because the borrower wants to tear it down doesn't change the substance of what it is. If I buy a cell phone and then smash it into pieces with a hammer, it doesn't take from the fact that I bought a cell phone. It was still a cell phone when I bought it. If somebody asked what I purchased, I would tell them I purchased a cell phone. I would not say I bought a bunch of shattered glass, metal, and electrical components, and a Lithium Ion battery.

So if the borrower buys a home and intends to turn it into a convenience store, you ought to follow your logic and report that as a home purchase for HMDA...after all, it is a home at the time they're buying it. You aren't buying a cash register, a beer cooler, and a hot box....you're buying a house, right?

This is where HMDA clarifies that you look at what the building WILL BE, not what IT IS. The example is given in the Commentary where it says that if you convert a home to a daycare, it's not reported. Why? They bought a house. Shouldn't that be a purchase? The answer is "No, because it won't be a house when the proceeds are applied.".

@David - The issue that I have there is the Commentary does not say if you convert a home to daycare, then it's not reported. The Official Interpretation states, "Also excluded (from the definition of a dwelling) are . . . structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices." So, to me, at the time of whatever transaction is taking place, i.e. the Purchase, Refinance, Home Improvement, the structure has already been converted to a daycare. In that case one is not purchasing a dwelling, or refinancing a dwelling. They are purchasing or refinancing a daycare. This situation is different, according to how I understand this comment at least, from purchasing an actual dwelling and then using the funds to convert the structure into a daycare facility. I guess you would take the same position in a refinance? What if the borrower took cash out and used funds to convert a vacation home into a daycare facility? Would you not report this as a refinance? At the time of the transaction you have a dwelling secured loan satisfying and replacing another dwelling secured loan to the same obligor.

Would you consider a dilapidated old house to be a dwelling for HMDA purposes? "Dwellings" are lived in--either now, or anticipated in the future. Structures built as homes that are not lived in now and with no plans for anyone to live in them in the future are not "residential structures" IMHO.

Webster's definition of "residential": "used as a residence or by residents"

....so we need a definition of "residence".....

"a person's home; the place where someone lives"

That is why i have been focused on the HMDA definition of a "residential structure". If no one lives in it, and there is no plan for anyone to live in it (a person might hold on to a house for several months or years trying to sell it....they still have INTENT for it to be a residence in the future)....then i don't see how it can meet the definition of a "residential structure".

Y'all might as well just agree to disagree at this point. Each 'man' for himself in defending his LAR if the particular loan is ever questioned.

JPC: I'm done trying to explain what is very clear to the rest of us. Just keep doing what you're doing. Why don't you email HMDA Help and post their reply?

It's a good discussion, but, yes, we probably agree to disagree .

HMDA help is [censored].

JPC: First, I agree HMDA Help is not great. But I'm asking you to go to the source with your opinion vs. what the rest of us are saying and see how they respond.

Second, I think I have a new way to help you understand why I say "Always look at what the building will be once the proceeds are applied."
With you logic, if I borrower money to construct a dwelling on a bare lot I already own, you would say "it's a bare lot" and we are told to exclude loans/lines secured by bare land only [§1003.3(c)(2)]. However, the proceeds will be used to construct a dwelling. Therefore, it must be reported as a purchase.

The Commentary to §1003.3(c)(2) #1 states to exclude loans/lines secured by bare land ...unless the institution knows, based on information that it receives from the applicant or borrower at the time the application is received or the credit decision is made, that the proceeds of that loan or credit line will be used within two years after closing or account opening to construct a dwelling on, or to purchase a dwelling to be placed on, the land. 


I submitted the question, but I just got some canned response that cited all the Regulations I've already read. I replied with the following:

"Thank you for your reply. Yes, I have read everything you have referenced. I answer Compliance Questions for a living pretty much. If I could find the answer in a previously issued piece of guidance, then I would not be asking the question. My inquiry was not regarding a short-term loan that was expected to be taken out by permanent financing. You did not accurately read/understand my original question. If somebody could give me a call concerning this question, I would appreciate it. I keep getting these canned responses referring me to various parts of the Official Interpretation that I have already viewed several times."

I did get a response saying sorry and for me to resubmit my original question, so we'll see if they give it a try, lol.

I agree with the above @David, but that is the only "look forward" example they specifically discuss, and even that is a recent addition for 2018.

Instead of submitting it to HMDA Help try submitting it straight to the CFPB. The answer they give will probably be over the phone, but it will probably at least be more than a canned response.

LOVE THIS!



That's not the ONLY "look forward" example. We've tried to tell you about a house being converted to a Daycare. That's two!
And this is NOT new for 2018. Building a house on land has always been considered a purchased for HMDA - at least since 1990 when I first started in this industry.

@NSF - Yeah, I've done both. It's pretty much the same response you get from both. They rarely contact you directly by phone anymore.

@David - I don't take the daycare guidance as forward looking. It seems to me to concern when the daycare already exists at the time of the transaction. Yes, building the home has always been considered, but the 2-year look forward guidance is "new" for 2018.

The mixed-use rules are another "look forward" example. Sure, not exactly the same (as they are not specific to a purchase), but definitely a "look forward" example.

Originally Posted By JPC
I don't really see much support in 2018 HMDA for "looking at the building once the loan funds are applied." I see that HMDA reporting is necessary when there is a covered loan secured by a dwelling that is located in the 50 states, DC, or Puerto Rico. A covered-loan is a closed-end mortgage or open-end credit plan that is not an excluded transaction under 12 CFR 1003.3(c). So, in this scenario, I have a closed-end loan secured by a dwelling located in the 50 states and I do not see an exclusion under 1003.3(c). So, check, check, and check.

Im pretty new at this and this might be a stupid question BUT how can a loan be secured by a dwelling that will no longer be there?

In my area, this happens quite a bit on the lakes. A small old cottage is on a beautiful plot of land on a lake and the cottage is torn down and a huge lake house is put up. It's really not much different than a regular construction loan in that the plot needs prepping before building the new home.

So.... As I was digging in the preamble to the 2015 final rule and the 2017 final rule, I found a statement that is included in both (see footnote 82 in the 2017 final rule for a slightly different version):

"Examples of commercial-purpose loans that currently are reported are: (1) A loan to an entity to purchase or improve an apartment building (or to refinance a loan secured thereby); and (2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property (or to refinance a loan secured thereby)."

If you break this apart, it seems to say the following: “a loan to an individual” …. “to improve a single-family home to be used”… “as a professional office”… is “currently” … “reported.”

Next, I looked at the commentary to the definition of a dwelling in comment 1003.2(2)(f)(3):

“Also excluded are … structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices.”

This example states that when a home is already converted to a business, it is no longer a dwelling and not reportable. However, this example does not appear to specifically address situations where the home is not already converted, but is going to be converted with the loan proceeds (and thus never used as a dwelling). Many compliance professionals (including myself) have applied the logic from the comment regarding an already converted structure to create an understanding that if a home is going to be converted to a non-dwelling business structure with the loan proceeds, that the home is also no longer a dwelling (based on the intended use of the property/structure), and therefore not HMDA reportable.

So, based on this and the discussion in this thread about not reporting a purchase of a dwelling to tear it down and build a spec home, I submitted the following two questions to the CFPB:

1) QUESTION 1: If an individual buys a single family home where the loan proceeds will be used to convert the home to a professional office (e.g. chiropractor) and the single family home structure will never be used as a dwelling, is this loan HMDA reportable?

2) QUESTION 2: If a builder buys a lot that contains a house to tear it down in entirety and build an entirely new dwelling, is this loan reportable as a purchase or is it excluded as a loan for a spec home?

After the initial response did not answer my question because it just quoted the reg I have read many times, I asked for further clarification. I received two calls from two different CFPB employees who both gave the usual disclosure that their response was only "informal staff attorney advise" and not a legal interpretation of the rule, so take this for what it is.

For question 1, I received a call from Joe Devlen(sp?) at the CFPB who stated he discussed this with several other staff attorneys and they all agreed that the loan would be HMDA reportable as the structure was a dwelling "at the time the loan was made." He reiterated that the key was what the structure was "at the time the loan was made." He then quoted an older interpretation from the Fed (that he said was informal guidance) which he said was basically the opposite situation, but they did their best to align with prior interpretations. He said the Fed's situation had to do with a structure that was not a dwelling at the time the loan was made but was being purchased to convert into a dwelling - the Fed stated that this was not HMDA reportable as the structure at the time of closing was not a dwelling. I then discussed a few instances of the "forward use" theory that was discussed in this thread, but he kept coming back to his statement of "at the time the loan was made."

For question 2, I received a call from a Francis at the CFPB. His reply mirrored that of Joe's, in that he stated that the spec home exception from the 2017 final rule would not apply as there was a dwelling at the time of the loan. Therefore, he said the loan in my question 2 would, in fact, be HMDA reportable.

Therefore, it appears that the CFPB is currently looking at whether there is a dwelling "at the time the loan was made" to determine if a loan is HMDA reportable, regardless of the purpose of the dwelling.

I would be curious how they are defining a building sitting on a property with no inhabitants (and no plans to ever have inhabitants) as a "dwelling".

I mean...i technically agree with them....if there's a "dwelling at the time loan is made", then yeah, you have a reportable transaction. It's just not a "dwelling" without someone living in it or any plans for someone to live in it.

I would be curious how they are defining a building sitting on a property with no inhabitants (and no plans to ever have inhabitants) as a "dwelling". . . . . . .It's just not a "dwelling" without someone living in it or any plans for someone to live in it.

Being inhabited as a condition to be classified as dwelling is a "dictionary" definition of a dwelling.

I have argued for years that no where in Reg. C or its Commentary does the structure have to be inhabitable to meet the definition of a dwelling. For HMDA purposes a dwelling is simply a residential structure.

(f) Dwelling means a residential structure, whether or not attached to real property. The term includes but is not limited to a detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home, or a multifamily residential structure or community.

Now for the "forward" use of the property opinion. I will have to rethink my position on that. I too have always held to the theory that if a dwelling was being purchased to be converted to an office, storage facility, etc. the loan would not be reportable but it appears the CFPB is taking the opposite approach to it being reportable based on it being a dwelling at the time the loan is originated.

Dan, but if you look up the dictionary definition of "residential" you get "used as a residence or by residents", so if you then look up "residence" you get "a person's home; the place where someone lives".

So how can a building that no one lives in and no one ever will live in be a "residential structure"? The regulation doesn't define "residential structure", so my understanding in those cases is.....go to the dictionary.

I have heartburn over this as well.. We often have farms [won't be an issue going forward ] where there are uninhabitable old farm houses. We don't report them. They just aren't dwellings except for mice and such. Maybe a passing vagrant...so I guess that may make them transitory

The thing that got me was what I quoted already from the 2015 preamble and this footnote 82 from the 2017 final rule:

82.  Current comment 2 (Home Improvement Loan)-4. In the 2015 HMDA Final Rule, the Bureau explained that “[e]xamples of commercial-purpose loans that currently are reported are: (1) A loan to an entity to purchase or improve an apartment building (or to refinance a loan secured thereby); and (2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property (or to refinance a loan secured thereby).” 2015 HMDA Final Rule, 80 FR 66128, 66169 (Oct. 28, 2015).

I am starting to think that a "hard line" dwelling test would probably be easier in the long run than the "forward" use approach many of us have traditionally used. That said, I'm not sure a "hard line" test really aligns with the intent of HMDA which is to help show whether lenders are serving the housing needs of their communities.

That is the key, IMHO.

I think the regulation defining "dwelling" and "residential structure" would be helpful. Again, i don't understand their answer--they do not define "residential structure" themselves in the regulation, and the Webster's definition of it (as i have quoted in here twice) leads one back to it needing to be resided in in order to be both a "dwelling" and a "residential structure".

I appreciate your research and providing your thoughts on this Adam. This is a paradigm shift and I'm not necessarily drinking the cool-aide just yet. You said:
I am starting to think that a "hard line" dwelling test would probably be easier in the long run than the "forward" use approach many of us have traditionally used.
I don't agree. I think a "hard line" test of "what will it be once the proceeds have been applied" is easier. Think about a bare lot (already owned) where I'm building a house. That is a purchase because there WILL BE a dwelling with the loan proceeds. If you apply the CFPB logic that you were given, this wouldn't make sense. There's no house there now and I already own the lot. How can it be a purchase with this new thinking?

I don't see any part of this as a change from the old to the new rules. I've also never had a client get cited for applying the "forward" approach. Why the change in thinking?

Great thoughts, David, and I appreciate the opportunity to work out some of the finer points of the new HMDA rules on these threads.

First, I haven't fully drank the cool-aide yet either, but now find myself split. What bothered me the most was the statement in footnote 82 (and the preamble to the final 2015 rule) that basically says “a loan to an individual” …. “to improve a single-family home to be used”… “as a professional office”… is “currently” … “reported.” And then add on the CFPB's response I got...


This is a great point and was actually part of my argument for the "forward" approach. When I talked with the attorney from the CFPB (who stated he discussed this with 2-3 other HMDA attorneys at the CFPB who all agreed), he seemed to view this as a special provision (sort of an exception, maybe like reporting permanent financing of a new build as a purchase rather than a refi) that was specifically addressed by the rule. He said that when they are answering questions they are not providing a legal interpretation, so they try to just read the actual rules in the regulation and not apply logic (my word) from other parts of the rule. In this case, all they could go on was that there is a dwelling at the time of the loan and there was not a separate part of the rule that specifically addressed this situation one way or another. He did reiterate that this was not an interpretation of the rule and that a bank might want to contact their primary regulator as they would be the ones enforcing the rule.

The biggest thing keeping me from drinking the cool aide is that the whole purpose of HMDA is to help show whether lenders are serving the housing needs of their communities. In applying this purpose, footnote 82 does not work as that example has nothing to do with the housing needs but relates to commercial structure needs.

So, my thought is that each bank will need to pick an approach/camp and stick with it. If this is a situation that comes up regularly, it may be worth a call to a regulator as they will be the ones to evaluate the bank.

FWIW, I too haven't seen anyone get cited for the "forward" approach in the past. That said, it is discrepancies in the new rules like footnote 82 could open opportunities for criticism with some examiners.

All,

I had not looked at this thread in a while because I assumed it was dead, lo and behold much more activity! Cool!

I basically went through the exact same steps that @Adam did. I was finally able to have an hour long discussion with Mr. Ponty at the CFPB. He stated the same thing as the gentleman that replied to @Adam. There is a "dwelling" at the time of purchase and it should be reportable. We went through the demolish and rebuild scenario, as well as the convert to a daycare facility. He did seem to indicate there is consideration for the way the loan is structured, such that if you had a "convert" or "demolish and construct" only loan that is temporary and then will be taken out by a perm loan, then you would not report the initial loan, because it is temporary, and then, in the case of the convert to a daycare facility, you would not report the perm either because it is not a dwelling at that time. Seems like you would already have to own the structure in this scenario.

He also talked about how he felt there had been a "paradigm" shift as @David called it, in that prior to 2018, HMDA was very much purpose driven. What is the purpose of the funds? He said that the 2018 rules shifted to more of an understanding of is it a covered transaction, implying more of a basis that it is what the circumstances are at the time of the transaction. This aligns with what Mr. Devlen and his band of merry men stated to @Adam.

@David - Like I said, I'm not afraid to buck conventional wisdom if my research leads me to a certain conclusion.

@Adam - Great find in the Preamble for the convert to a professional office. Also, thank you for going down the same path I traveled, lol.

All i can say is that i won't be changing my approach on this.....a structure that isn't used as someone's residence doesn't meet the definition of a dwelling IMO (i see no way it can be seen as a "residential structure"), so they can call an about-to-be razed structure a "dwelling" all day long, but IMO, it still isn't.

But, now EVERYBODY is telling you that you are wrong, lol . . .

I respect you sticking to your guns, as I stuck to mine. Take it for what it is, but this does seem to be the stance the CFPB is taking on the issue, as we have two separate and distinct phone calls with the same reply, and in Mr. Deven's case, he consulted with several other legal staff on the issue.

Who is EVERYBODY? You and some guy from the CFPB? ETA: lol

My point is: if they want to take this stance, then they have problems with their regulation and its definitions. They need to go into the regulation and fix their definition of "dwelling" and "residential structure". If somebody at the CFPB suddenly started saying that the purchase of Tonka trucks was a reportable purchase, i'd need a bit more than that, as Tonka trucks aren't residential structures or dwellings.

LOLOL. Adam seems to be with me now and the other one guy from the CFPB and his band of merry men.

Well, jump on that bandwagon and report them that way then. Until they change the definition of "residence" and "residential", i'll stick with what the regulation actually says....i see no gray. Just like i don't report Tonka truck purchases, i won't be reporting purchases of structures that nobody lives in.

I'll feel safe not referencing "the other one guy from the CFPB". LOL

FWIW, I'm on Russ's side. If I have a purpose and that purpose is to change the structure to a [haha] Tonka truck playground...I'm not reporting it. It's purpose is NOT a dwelling any longer.

You guys are cracking me up with this thread. ;-)

FWIW, I haven't fully drank the Cool Aide yet on this, but I think footnote 82 gives JPC's camp some foundation to stand on.

Like many of the finer points of HMDA, this seems to be a gray area with two camps. That said, I really doubt many of the field examiners will have a clue about the two different camps or even footnote 82. ;-)

I'll make it three on raitchjay and Joker's side.
And I'll also remind everyone of another HMDA issue a few years back, documented right here on BOL (involving David too, if I recall correctly) where a rogue HMDA government person declared something that rocked our worlds and was later disproven and retracted.
My recommendation to you, JPC, is that unless Mr Ponty is willing to put his OPINION in writing and state that it is the official CFPB stance, don't be so quick to hang your hat on it.
I have painful personal experience where basing reporting on 'someone in a phone call' led to resubmission.

I think they've done similar with TRID, too, TR.

It's kinda like calling HUD. You can call 3 people and get 5 different answers

That's sort of what i'm trying to say: i don't see this as a gray issue. I (personally) never would have called the CFPB on the issue because it isn't gray to me. So i don't need "clarification" from the CFPB on an issue that isn't gray to me.

Or the Fed's HMDA help that used to give you two different answers from two different people from only 1 single e-mailed question...

The only reason I call it a gray area is because the rules don't blatantly say in the rule or commentary "report it this way for this scenario."

Also, I see it as problematic that footnote 82 does not align with the purpose of HMDA which is to help show whether lenders are serving the housing needs of their communities.

JPC posted

I think you answered your own question here. Your mortgage is not secured by a dwelling if you convert it.

Adam....the point i'm trying to get across is to me, the "forward-look" or "backward-look" stuff just really is a moot point in my eyes......there is no controversy amongst any of us if a dentist's office is purchased and razed. Well, to me,when a structure that once upon a time was a dwelling but is no more is purchased and razed, it's exactly the same as the dentist's office scenario--not reportable. (Even a "backward-look" to me gets you the same result....looking back at a structure that is not a dwelling.) That's why i have been talking over and over again about the definition of a "dwelling" and a "residential structure".

Remember . . . I'm not jumping on anybody's bandwagon. This has been my take since the thread jumped off.

I still go back to my original analysis. At the time of getting the loan, the borrower purchases a property with a dwelling on it. You have a dwelling secured loan in the 50 states with no applicable exclusion. Therefore, you have a HMDA reportable loan. The borrower turning it into a Tonka Trunk 6 months in the future doesn't take away from that. Which is what the CFPB's stance on it and Footnote 82 that Adam referenced seems to consistently indicate. What secures the loan at the time of the transaction? A DWELLING!

It's secured by a dwelling at the time of the transaction. Yes, once you convert it, then it is no longer a dwelling. So, if you refinance the loan a couple years down the line and at that time you now have a converted structure, then, yes, feel free not to report that transaction. But, the original transaction involves the Purchase of a Dwelling.

I think there is something terribly wrong with that footnote. I don't know of very many reporters that 'currently report' a total transformation to commercial property.

(2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property

Rental, certainly...professional office is lacking...I truly can only believe they must have meant an improvement loan to add an office to a single family dwelling...that would be and continues to be reportable.

Again, i'll point you to the definition of a "dwelling": Reg. C says a "dwelling" is a "residential structure (whether or not attached to real property) located in a state of the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. The term includes an individual condominium unit, cooperative unit, or mobile or manufactured home". They go no further in defining a "residential structure", so we must go to the dictionary for that.

So, a "residential structure" is "used as a residence or by residents", so obviously we need a definition of "residence" and we get "a building used as a home".

A structure being demolished is not being used as a home.

That footnote flies in the logic of their very own definitions. If they want that footnote to have any meaning, they must totally transform their own definitions.

You state "...the borrower purchases a property with a dwelling on it" as if that is just a given. That's the whole point. Without someone dwelling in it, or any intention of someone dwelling in it, it is NOT a dwelling.

And if the CFPB wants the definition of "dwelling" to mean something else, then they have to go in the regulation and change/clarify the definition.

I just don't see how residing in it makes a difference here. So, would you change your mind if they resided in it while it was being covered into a daycare facility? So, the borrower buys the "dwelling" (structure) and intends to convert it into a daycare facility or an elderly care home (transitory housing), but actually lives in the structure while the conversion is taking place. Would you report as a "Purchase" because the borrower temporarily lived in it, even though the end result is still an excluded type of property?

Assuming this loan wasn't otherwise exempt (don't know if we're talking about a temporary loan, but i'll assume for these purposes that we are not)--if the purpose of the loan were to purchase a structure, inhabit it temporarily whilst also converting it to a day-care facility (i find that concept pretty 'out there', but i'll go with it), yes, i would report it, because it will be used as a residence.

"I just don't see how residing in it makes a difference here." It makes a difference (IMO) because the definition of a "dwelling" is that someone LIVES there. Without someone living there or intending to live there, it does not meet the regulatory and dictionary definition of a "dwelling" or a "residential structure".

Why aren't transitory houses reportable? Because their "occupants have primary residences elsewhere". No one "lives" there. They're brick and mortar, have showers, have kitchens, bedrooms, etc. but they aren't a "dwelling" for HMDA purposes. So the argument that anything that you and i think of as a "house" must be reported is obviously not the case, or else we'd be reporting weekend beach homes.

This last statement is where I was just about to go. That and the dilapidated/condemned 'dwelling' that only mice and maybe vagrants [transitory at best] live it. This is not a dwelling...even though it may have been a house.

or else we'd be reporting weekend beach homes.

Why wouldn't we?

I completely agree, but it gave me enough heartburn to call the CFPB. I was totally expecting them to say one thing, but then they said what JPC is saying. I even called back to clarify and they held their ground.

The problem I have with reporting a loan where a dwelling will be torn down or converted to a non-dwelling is that the whole point of HMDA is to help show whether lenders are serving the housing needs of their communities.

A loan for a home to be torn down or converted to a commercial structure is not a loan for the housing needs of the community.

Because they meet the definition of 'transitory housing'.....their occupants have "primary residences elsewhere".

I totally agree with that. I personally think whoever y'all spoke to is all wet.

The only way a rent home purchase/refi/home improvement/home equity loan is reportable IMO is if the renters live there on a permanent basis. Weekend rentals don't qualify.

That's too transaction specific then to say that if the person lives in it while being converted, then it is a "Purchase." At a certain point the guidance has to be general enough to cover most scenarios.

It's cool, we already blew up this thread enough. I enjoyed the conversation. Interesting topic, but I'm good with considering these "Purchases."

I'm thinking weekend beach homes refer to rentals^ Like doing it as an AirBnB.

Originally Posted By raitchjay
The only way a rent home purchase/refi/home improvement/home equity loan is reportable IMO is if the renters live there on a permanent basis. Weekend rentals don't qualify.


The Commentary clearly states to report vacation homes . . .

[The definition of a dwelling is not limited to the principal or other residence of the applicant or borrower, and thus includes vacation or second homes and investment properties.]

This again brings up another good scenario. What if they use it as a vacation home for themselves some of the year and then rent it out as an AirBnB the rest of the year. Is it a dwelling?

A vacation home and a weekend rental are two different things. I never said not to report vacation homes.

If a home is BOTH a vacation home (for the owner) and a weekend rental (when the owner isn't there), then yes, it's reportable. My point was that if a home is ONLY used as a weekend rental, then it meets the definition of transitory housing and wouldn't be reportable.

I don't think you can make a hard/fast statement like that. You would really have to know more details, like does the owner use it enough to consider it a second home [code 2 - not owner occupied as a PR.

My first post was meant to say "weekend beach home rentals". See my post above.....

Sorry..i left out a key word....my apologies.

Sorry, we were all posting at once.

From the commentary:
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 for purposes of § 1003.4(a)(6).

I understand that......please read my post to say "weekend beach home rentals", which is what i meant to say, but failed to type.

Yes, we were all posting at once and I was a bit slow on grabbing my quote. ;-)

FWIW

I love these type of thread here on BOL. It makes me see both sides and really think through how my bank will handle these situations.

I'm not changing my stance either. So EVERYBODY is not saying raitchjay is wrong. Adam even said he's not fully drink the Cool Aide on this. I don't think there's evidence that our stance is wrong. I think there are differing opinions. HMDA has many areas for "pick a stance and be consistent". In my neck of th woods, examiners are not interpreting it the way you are.

JPC: I'm not sure who you are. I enjoy dialoging with others and will always admit when I'm wrong. I may be reading your posts incorrectly (I can't hear your tone or see you), but you appear to me to be very antagonistic. BOL is a community of professionals that helps each other be better. We don't attack others, shout (i.e. typing "EVERYBODY" in all caps), belittle each other, etc. Your posts seem to be doing just that. If that's not your intentions, please consider what you've said and how you're saying it before hitting "submit".

@David - I was kind of making a joke out of the above post that you directed towards me, which I felt met the definition of several things that you were just accusing my posts of being . . .

Big thumbs up!

Makes sense now. I'm humbled as I see I did the same thing that I called you out on. Please forgive me. I'm glad you responded and clarified. I hate that we only get a small percentage of communication with typed messages. We often jump to conclusions of tone and, as you just pointed out, that's exactly what I did.

I appreciate the follow-up. I have pretty thick skin when it comes to things like this, so it was no hard feelings on my part. I just thought it was funny you called me out on it, when I felt that your post did try to yell in caps, belittle, etc. Especially, when I ended up being right in the end . . . I know, I know . . . don't everybody jump on me at once.

JPC: I apologized and appreciate your follow up. Now back to the topic:

My issue is your insistence that you are right and the rest of us are wrong. You said it again in your last post. I see the emoticon, so maybe you're just being funny. Other than Adam saying he sees your point, I don't see anyone else agreeing with you - other than possibly a CFPB representative. The problem I have with your CFPB source is I have had similar conversations with them and receive confirmation about the "forward look". I think a lot hinges on how things are presented.

Yeah, I'm just being funny. Obviously, I do think my interpretation is right, or else I would not be so firm with my stance. I agree that presentation can always sway conversations in various ways, but I did have a long conversation with the fellow and I presented the evidence and position of both "camps" on this thread. I do find solace though in that Adam and I contacted two separate representatives and they both had the same answer without any collusion between them. Also, in Adam's case, his representative asked several other CFPB staff and they all had the same conclusion.

I'm going to try to leave this thread after this post, but IMO the biggest problem with any CFPB rep saying what JPC reports is again, the definitions in the regulation do not support such an idea. IMO, they can't just issue things like that without updating their OWN definitions. Your regulation can't say a dwelling is "a residential structure" which by definition means "someone lives in it as their home" and then issue guidance saying "but a building that looks like a dwelling that no one lives in" is a dwelling too. That's like having a regulation that says "UP is in the direction of the sky" and then issuing guidance or opinions elsewhere where you say "UP is in the direction of the ground".

Also....IMO, my experience is that people who work at govt. agencies like the old HMDA Help or the current CFPB don't put nearly the thought into the intricacies of regulations like HMDA that people who deal with them on a daily basis (compliance professionals and consultants) do. I mean...i think we all have had plenty of experiences with HMDA Help giving answers that were simply wrong, and any compliance professional could tell you immediately that they were wrong. So, personally, what someone sitting at a non-bank desk in a CFPB office doesn't sway me a lot.

[quote][/quote]This was a great thread. I found another more recent thread that discussed the main topic we had going here, i.e. purchasing a home, even potentially a "jacked" up one, and tearing it down and building a new home and then selling. https://www.bankersonline.com/forum...78/help-acquisition-and-new-construction

Guess the CFPB ended up "putting in writing" much of what they said to me personally in the discussion with Mr. Ponty.


https://www.consumerfinance.gov/com...ments/home-mortgage-disclosure-act-faqs/

So, i guess according to the CFPB now, loans to purchase land that has dilapidated "dwellings" on them for the purpose of razing the "dwelling" and holding the bare ground for resale are now reportable. Good to know.

I say let the CFPB go to one corner and their regulation and its definitions go to another corner and ring the bell and let them duke it out.

LOL . . . I haven't heard of any nuances yet for the condition of the home being razed, but the general standard seems to be to report as a "Purchase." Nothing I've seen yet in HMDA speaks of the "condition" of the dwelling as any deciding factor for anything.

I just threw "dilapidated" in there for description.....i've never argued that condition is the factor. Use and intended use...absolutely.

The FAQ i read from your link mentioned a home being razed and a spec home being built in its place....so i'm confused by what you mean that you haven't heard .....???

So NABW....someone comes in wanting a loan to buy a piece of property that has a dilapidated house on it....the loan proceeds will buy the land, raze the house, and construct a barbershop.....you're reporting that loan on your LAR?

ETA: and please note, there's no "conversion" going on in this scenario...we aren't converting a home to a barbershop.

Yes, I would report that on the LAR. As I have argued all throughout the thread, when you purchase the property with the home, you purchased a "dwelling." What you do after that would be relevant to whatever other transaction may need to be engaged in to change from the purchased dwelling to something else.

What I was saying is I haven't heard any guidance or answered discussions with the CFPB about whether the condition of the razed home would cause a different answer. I.e., if the roof is caved in, there is ivy growing all along the walls, wild animals living in the home. Is that still a "dwelling?" Who knows? Hasn't been discussed yet, from what I can tell (other than by industry Compliance people like us).

As I've stated before one needs to contact their primary regulator to get their opinion on this scenario. Their opinion is the only one that matters in how you report.

I agree with Compliance NABW...I have always argued that a residential structure does not have to be "dwelled" in to meet the regulatory definition of a dwelling, regardless of its condition.

As for the "intended use" of the property - in the past I supported that reasoning. However, in light of the CFPB opinion I would not support that opinion now. As Compliance NABW stated the borrower is purchasing a dwelling (per the CFPB Q&A) with the loan proceeds, what the borrower does with the dwelling after the purchase does not play into the definition of a home purchase. The borrower can always change their mind about what they are going to do with the dwelling.

Just my 2 cents worth.

I agree with Dan to ask whoever is going to be doing examining you for data integrity, but just to add my 2 cents.

1) A building that can't be resided in (collapsed roof ect) isn't a dwelling (residential structure) in my book. Unless the proceeds are gong to be used to make it into a dwelling, then I would not report it. I agree that a dwelling that isn't currently being dwelt in is still a dwelling, but a building that isn't habitable isn't a dwelling.

2) I think tearing down a dwelling and putting up a different non-dwelling building shouldn't be reportable. It makes absolutely no sense for a loan to purchase a dwelling and use it as a day care facility to be excluded, but a loan to buy that same building and tear it down to build an actual day care facility to be reportable. I don't expect much sense from regulations, but I need more than that. I suppose it's not a dwelling because it is going to be converted (via destruction) to exclusive commercial use. It's a bit of a tortured reading of the reg and the FAQ, but the alternative makes no sense to me.

This is why i posed the question and i agree wholeheartedly that it makes no sense to report a loan to raze a dwelling and construct a day care facility, barbershop, whatever but NOT report a loan to CONVERT said dwelling to a day care facility, barbershop whatever.

I could be wrong but when the regulation discusses daycare facilities or professional offices, it is discussing them in past tense ("homes converted"). It's not stating "such as homes that will be converted to daycare facilities or professional offices."

To me, this is discussing a dwelling that is already a daycare or office at the time of application or loan origination.

From the regulation: "Also excluded are transitory residences such as hotels, hospitals, college dormitories, and recreational vehicle parks, and structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices."

"To me, this is discussing a dwelling that is already a daycare or office at the time of application or loan origination."
I disagree. The definition of "dwelling" is:

(f) Dwelling means a residential structure, whether or not attached to real property. The term includes but is not limited to a detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home, or a multifamily residential structure or community.

If it was already a daycare or office, it wouldn't be a "residential structure" anymore. If what you say is true, then any building that has ever served as a residence is only exempt once it becomes a non-residence and then the owners want to remodel it or someone buys it.

Let me apply some "logic" from other regulations:
If I own a bare lot and want to build a house on it, you must provide TRID disclosures and do a flood determination. Why? It's bare land! We don't look at what it is or was, we look at what it will be once the proceeds are applied. There will be a house on that lot, so TRID and Flood apply.

If I was building a non-residential structure on the lot, TRID would not apply - even if the lot was surrounded by houses and the property was zoned for residential use. You would comply with Flood because it will have a building on it when the proceeds are applied.

HMDA is no different. The Commentary to 1003.2(f) says this is illustrative and gives examples of what are NOT dwellings.

If I was building a non-residential structure on the lot, TRID would not apply

That is only true if the loan is not for a consumer purpose. All consumer purpose loans secured by "dirt" are subject to TRID.

HMDA is no different. The Commentary to 1003.2(f) says this is illustrative

I searched 1003.2(f) for the word "illustrative" and it does not appear from what I could find.

1002.3(f) does refer to the following: . . . . and structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices.

It doesn't say "to be converted".

How any of this meets the stated purpose of HMDA is beyond me, and i still say if they want to interpret it this way, they need to change their own definitions, as the Webster's definition of "residential" says it needs to be lived in or meant to live in......but i guess they DO want it interpreted this way now.....so according to the CFPB, start reporting loans to raze structures that were dwellings 20, 30, 40, 50 years ago.

I'm really not sure that they've considered all the ramifications of this interpretation.

I just want to add--i think it's a whole different story if someone wants to buy a piece of land with a "dwelling" on it (dilapidated or otherwise) and just hold it for investment versus a loan with a stated purpose of razing that structure/"dwelling" and building a new commercial structure in its place. In the 2nd scenario, there really is no consideration that the borrower might "change their mind" as the bank is financing/monitoring funds for the construction of the new commercial building (especially in a scenario where you have a small parcel of land with space for only the 1 structure). So the thought process behind reporting this 2nd scenario, and how it advances the stated cause of monitoring "home loans" in the U.S. is quite a leap IMHO.

Dan: You & I have discussed this to death. I didn't bring this back up to see if I could convince you. A previous poster asked me if my opinion has changed. It hasn't.

You're right about TRID - I didn't provide enough details, but I believe you understood my point.
I believe HMDA ISdifferent. The HOME mortgage disclosure act wants to know about housing. Many dwellings were removed from the latest rules (like a motor home that serves as a full time residence, houseboats and farms with houses). There is no logic in trying to include a dilapidated building that once served as a residence but now the rats are even nervous about staying there.

You can stick to your interpretation (that's okay, I'm sure it works for you). You know I turn legalistic terms into plain English. You're right that technically the term "illustrative" is not found in §1003.2(f) [You'll notice that I didn't quote the regulation in italics or state it verbatim.] BUT you will find the phrase ". . .includes but is not limited to . . ." numerous times in the regulation, commentary and preamble. That phrase would be the same as "illustrative" to me. I'm just trying to help people understand, not be legalistic or unrealistic.

I stand by what I've stated above and many times before on this topic.

[quote][/quote]I respect you sticking to your guns, @David, but I think it is clear now that the official CFPB line disagrees.

In reply to your question for proof in the other thread - The FAQ (#1 in the Construction Transaction section): https://www.consumerfinance.gov/com...ments/home-mortgage-disclosure-act-faqs/

If the original, demolished dwelling wasn't in the picture, then this should be an excluded "spec home" transaction.

I still say there's a lot of wiggle room here: IMO it doesn't take much for a dilapidated "dwelling" to be something else--IOW, if the borrowers or previous owners had previously used it as a storage shed or some other use, then voila, you are back to just razing a "structure" and all of this goes away. The quoted FAQ says "buy a house". If it's last use was a storage shed or something else, then it's not a "house" and that FAQ is no longer applicable IMO.

If you read "converted to" to include loans where the proceeds are doing the converting (reasonable minds can disagree), then there is nothing inconsistent with that and the FAQ for a spec home. The conversion is what takes the loan out of the definition of a dwelling. For a purchase of a dwelling then razed to build a spec home, there isn't a question about whether the initial building is a dwelling. It's right there in the FAQ. It's a dwelling. Temporary financing exemptions don't define a dwelling.

I guess my mind is just asking this question:

How many "dwellings" that have any value, and that could be lived in without spending tens of thousands dollars to repair them, actually get razed? In my world...virtually none. And again, what is it about having 4 walls, a roof, and the memories of people who once lived in the structure, that now has no plumbing and no electricity, that makes that thing a "dwelling" or as the FAQ would say it "a house"? I don't really think the FAQ covers all it needs to cover....

Exactly though Raitchjay, so under your own analysis of the situation you should be pretty much agreeing. How many times does a functioning home get torn down and rebuilt? You conclude almost none (though in some parts of the country where the lot is actually the more valuable "commodity," it is decently common). Therefore, the question (in your framing) should have implicitly arisen from a scenario where the borrower bought a dilapidated house, demolished it, and then had a new house built.

Of course the FAQ doesn't cover all it needs to, they never do, lol. They usually give you general guidance that you then have to fit to a varying range of specific scenarios.

What i'm saying is....i have no problem (based on the FAQ) with the thought that a loan to purchase a "dwelling" or "house" to be razed and replaced by a spec home is a reportable HMDA transaction. It just still goes back to what a "dwelling" or a "house" IS. Is a structure built in 1940 that once housed families and now has no plumbing, no electricity, no toilet, no sink a "dwelling"? I don't think it is......again, a "residential structure" (not defined by Reg. C) is defined by Webster's as the place where someone lives. My logic extends that definition to include "or a place where someone CAN or WILL live". So as far as it goes....i agree with the FAQ....i just don't agree that every structure that once upon a century housed a family is and always will be a "dwelling".

And i reiterate my question about how this FAQ furthers the cause of HMDA, to report and monitor the "housing needs" of the country. I have no idea how a loan to raze a structure/dwelling/house and replace it with a feed store informs anything about the housing needs of that community.

So yes, i recognize what the FAQ is saying....i have a problem with their logic, in the face of the definition of "dwelling" and i have a problem with how this FAQ lines up with their supposed aims for Reg. C.

I agree completely.


I disagree completely.

I think raitchjay spelled it out very well in the last post but let me ask, are these dwellings?
https://binged.it/3c6ybkd
https://binged.it/2ZHBn0U
https://binged.it/2FEXPjY

Well, it looks like I'm a bit late to this "party" and there are a lot of moving parts here, but here are my thoughts.

First, as Dan stated, I think it is important to run debatable/gray areas like this by your primary regulator so that everyone is on the same page come exam time.

Secondly, what I recommend below isn't necessarily what I think is logical or goes with the "spirit of HMDA" which is to report a banks record of meeting the housing needs of the community.

That said, I want to point out two things: 1) CFPB guidance and 2) managing gray areas.

1) CFPB Guidance. I believe that, while this topic is debatable, we have three forms of guidance from the CFPB that give us enough to lean heavily in one camp.

The first guidance to look at from the CFPB is their HMDA FAQs. When I look at FAQ 1 in the "Construction and Construction/Permanent Transactions" section of the CFPB FAQs, it appears to me that the CFPB considers a home to be torn down to be a dwelling. In this example, if there wasn't an existing structure, the transaction clearly would not be reportable since the transaction is for a builder to construct a dwelling for sale. But since the example is not exempt, this tells me that the CFPB believes that a structure that is a dwelling at the time of closing - regardless of what will happen to that structure - is a dwelling for HMDA purposes and should be reported (if applicable). Again, I don't necessarily agree with this logic, but to me, the CFPB has made their position clear.

The second piece of guidance from the CFPB to look at is Footnote 82 in the 2017 HMDA Final Rule which says this:

""Examples of commercial-purpose loans that currently are reported are: (1) A loan to an entity to purchase or improve an apartment building (or to refinance a loan secured thereby); and (2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property (or to refinance a loan secured thereby)."

As we can see, the CFPB explained in Footnote 82 that loans to purchase or improve a single-family home to be used as a professional office, "currently are reported." To me, it again appears that the CFPB is looking at a structure at the time of closing rather than the future.

The final thing we can at is the definition of a dwelling. If we look at the commentary to the definition of a dwelling in comment 1003.2(2)(f)(3), the example there (which is talking about loans that are excluded) makes it clear that structures already converted to daycare facilities or professional offices (i.e. commercial use), are not HMDA reportable. As others have stated, this example does not say "to be converted" and is clear that the structure was already converted to, and used exclusively for, commercial purposes.

2) Managing Gray Areas. At the end of the day, gray areas can lead to inconsistencies, which can lead to violations. Years ago, I had a rough HMDA exam because I was trying to defend our HMDA team against an unreasonable and legalistic - but extremely intelligent - examiner. Believe me, I put up the absolute best argument I could, but at the end of the day, he got us on inconsistencies. I would argue one camp, but he would bring up a slightly different situation that our HMDA team chose the other camp and said we couldn't have it both ways. Now, I know raitchjay and David wouldn't fear going to battle with an examiner on this topic (and other gray areas), but unless I'm the one making the decision on gray areas 100% of the time, I just don't think it is wise to take this up-hill strategy. In other words, if there is a very solid argument that can work - even if I disagree with that logic - I've come to terms that, for management purposes (when others are making the decisions), it is best to take a hard-line approach and go with the path of least resistance. So, in the case of dwellings and future use of the property, I've come to terms that the best recommendation most times is to take a hard-line approach and look at a structure at the time of closing to determine whether it is a dwelling at closing (rather than what will happen after closing). I completely agree that this is debatable and have no doubts that raitchjay or David would be able to successfully argue this with most examiners/auditors, but not everyone is able to do that and inconsistencies, as I experienced, can put you between a rock and a hard place with an unreasonable and legalistic, but highly intelligent, examiner.

So based on all of this, my 2 cents is that most should use a hard-line approach with their HMDA teams by looking at the structure at the time of closing, not looking at what will happen in the future.

And to be consistent for management purposes, I also think it would be wise for most to consider dilapidated structures that were originally designed as a dwelling but never converted to non-residential/commercial use, as a dwelling - unless your primary regulator gives you other guidance in writing. Again, if you generally don't report dilapidated structures as dwellings, then you could easily end up with inconsistencies from where you draw the line of dilapidated that could get you in trouble with an unreasonable and legalistic, but highly intelligent, examiner.

Again, just my two cents so take it for what its worth.

Been wondering when you'd chime in Adam. Thanks for doing so.

Being a (somewhat) unreasonable and legalistic, but highly intelligent, examiner in a prior portion of life, I fully agree . We have no guidance at this time as to where to draw a line between a dilapidated building in terms of is it habitable or not and how that intersects with being a "dwellig". I could only pen the first one of David's pictures, but, yeah, that old house looks like a dwelling to me. It wasn't in super bad condition. I have seen far worse, which, again, what is the criteria? We don't know. It's subjective to each different viewer to a point. As Adam stated, I agree it may not go with the intent of HMDA, or be all that logical, although it is logical to me, as this has always been my position in the thread. However, the CFPB has given us a "template" with the FAQ to use as a "standard" for most such scenarios. I would be very careful about going against the "standard" treatment they have outlined. Perhaps we can all start sending in questions to their HMDA Help site about "homes" that are totally trashed and see if they want to give some kind of criteria for when a dilapidated building is a "dwelling" or not. But, beyond that, I believe in the vast majority of situations, they expect these to be reported.

I think regs should be read to fulfill the purpose of the law. Collateral where people will be living is fundanmentally different than collateral where people will not be living. That's the whole point of HMDA. I'm not saying the reg can't be read to include a bunch of loans secured by property where people won't be living. I'm saying it shouldn't be, and there IS a way to reasonably read the reg to exclude them.

As just about everyone has said, check with your exminer if you are concerned and do what they say. If your examiner cares about the purpose of the reg, they should exclude these in my opinion. If they like to quote the implications of unrelated commentary to increase compliance burdens and muddy the HMDA dataset, then you should report them.

Sorry, the other 2 links didn't work (I'm not sure why).

Compliance NABW said: "yeah, that old house looks like a dwelling to me. It wasn't in super bad condition."

Really? There's a tree growing inside of it on the side facing the camera and another growing out of the right side window. It's obvious that no one has lived in it for years. If you think that's a dwelling, then we'll never see eye to eye on this issue (and that's okay), but I would argue this adamantly with any examiner that tried to say otherwise.

Well said, Inherent_Risk. As much as we like to joke about it, common sense does still exist and we shouldn't accept otherwise.

It just looks to me like some ivy is growing up the side of it. If there is really a tree growing inside the house, then, yeah, that's pretty bad, but I've seen places with roofs caved in, whole walls collapsed, etc. The old farmhouse isn't all that bad in comparison

First - this is one of the best and well thought discussions I've seen here in a long time. My thanks to all of you participating.

Second - I will offer one observation. Repeatedly there is the comment to check with your primary regulator as it's their opinion which matters. That isn't entirely true because unless your primary is the CFPB, your agency can offer it's informal opinion (which ay get you by for now), but Reg C is "owned" by the CFPB and if it has been asked, and it answered specifically, then it is the CFPB that needs to be convinced as it is the entity that will offer an official opinion, and it seems to have done so based on what was posted here. Even if your (not the CFPB) examiner says s/he agrees with you, that comment will be followed with a "but" and that's where your day goes from good to bad.

This has been a really beneficial discussion . . . Thumbs up for your input

I always appreciate a good discussion and it's hard when we're not all in the same room working through this. I'm going to step back and try to sort out some of the things that have been stated.

1. I don't disagree with the CFPB's Construction FAQ (#1). I liken it to the Commentary to §1003.3(c)(3) #1(v) that basically says short term loans are not (excluded) temporary. What is described in the FAQ is similar to a "splash and dash" or "flipping" where you purchase a house, fix it up and sale it. The FAQ clarifies that even if the house is torn down, it's still reportable. My personal opinion is because this has to do with housing - what HMDA is all about.

2. I still disagree that a house is always a house. We can all see different things in our mind, so I tried to post pictures of buildings that no one would reside in. I believe that we should look to the borrower's intentions to determine if a building is a dwelling, similar to other places in Reg C where it states an institution may rely on the applicant's stated purpose. Why would the CFPB want statistical data on an application if the borrower didn't intend to have residential purposes with an existing building? This is further supported by the Commentary to §1003.2(f) #4 that discusses mixed-used properties; the Commentary to §1003.3(c)(9) #1 that excludes ag loans (even if there is a dwelling located on the property); the Commentary to §1003.2(f) #3 that excludes houseboats and floating homes even if they are used as a residence, etc.

3. Along a similar line of thought is the confusion about the Commentary to §1003.2(f) #3 discussing "…homes converted to daycare facilities or professional offices…". I see the angle that this is past tense (already converted), but again, why would the CFPB want statistical data on an application if the borrower doesn't intend to have residential purposes with the existing building? For example, I purchase a "house" but I will convert it into my consulting office with the loan proceeds. The Commentary states ". . . and structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices." Some are saying I'm adding the words ". . .such as homes (THAT WILL BE) converted to . . ." I believe some are adding the words ". . .such as homes (THAT WERE) converted to . . .". I hope that's clear.

I'm trying to clearly articulate these thoughts and plan to submit them to the CFPB for further clarification. If what I'm saying above isn't clear or if you have a better way to state what I'm trying to say, please let me know.

Thanks.

Understand and mostly agree with your points. The big issue though with #1 is that such "splash and dash" with a new construction is specifically mentioned as an excluded transaction. If the existing home has no consideration as a dwelling, then I don't see it having any difference with a property where only a lot exists with sewage, etc. and a brand new home is constructed.

2. Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

I think we have a different definition of "splash and dash". In my area, that's the term that is used for purchasing a home, remodeling it and reselling it. Those are not excluded. So my point in #1 was it doesn't matter if you:
1) buy a house, fix it up and sell it; or
2) buy a house, raze it and build a new one.

Both are reportable.
Hopefully, my #1 (above) now makes sense.

We wrote the following to the CFPB. Hopefully, we can get a reply and further clarification:


Comment #3 to §1003.2(f) states “…structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices” are excluded from the definition of a dwelling. Does this exclusion apply to applications where the loan proceeds will be used to convert a structure designed as a dwelling into a daycare center or office? Or, is this exclusion intended to apply only to applications secured by structures which were once a dwelling and have already been converted to daycare facilities or offices and are now being pledged as collateral?

Another scenario we frequently run into are loans secured by structures originally designed as dwellings, but have since been abandoned and currently in such poor condition that there is no intention for the structure to be used as a dwelling. In these cases, the intent is not to improve the structure for it to be lived in; rather, the property which happens to include the structure is being used for a different purpose. The structure originally designed as a dwelling will not be used for any purpose; rather, it merely comes with the land that the borrower wants to purchases, for example. Do structures that are in such poor condition that there is no intent for someone to dwell in still fall under the definition of a dwelling? Here are some examples of structures originally designed as dwellings, but obviously no longer intended to be used as such: https://i.pinimg.com/originals/af/ba/5c/afba5c61cee73d4db377da0d12705656.jpg

Ultimately, does an institution look to a borrower’s intention of whether a structure originally designed as a dwelling will actually be used in the future as a dwelling? Or, is a structure originally designed as a dwelling always a dwelling unless or until it becomes something else (e.g. an office or daycare)?

Yes, sorry, I incorrectly used the term. I was trying to make the point that the (2) definition you mentioned of "buy a house, raze it and build a new one" is conceptually the same thing as constructing a new spec home if we don't give any credit to the fact that the home that will be raised is a dwelling.

That's more the type of picture I would agree with as not being a dwelling, though I still guess the CFPB wants these reported when purchased. That structure is JACKED up.

I will write a similar question to the CFPB as well. Perhaps with several commenters, they will be more inclined to answer the question.

Good idea. Maybe they can see how we are struggling to fully understand their intentions. Hopefully, we can get written guidance.

David - Wondering if you got a response on this from the CFPB? Thanks!

You aren't really expecting the Bureau to respond to a question that controversial so quickly, are you? It's only been four business days since David posted here to say he submitted the request.

We actually got a response on Friday - 3 business days from submitting the questions! I hate this, but I was wrong on all accounts.

Issue #1: Comment #3 to §1003.2(f) states “…structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices” are excluded from the definition of a dwelling. Does this exclusion apply to applications where the loan proceeds will be used to convert a structure designed as a dwelling into a daycare center or office? Or, is this exclusion intended to apply only to applications secured by structures which were once a dwelling and have already been converted to daycare facilities or offices and are now being pledged as collateral?

The attorney said this was past tense. IOW, a dwelling that is converted to a non dwelling, is still a dwelling for HMDA. This makes no sense to me from a pricing & application process standpoint, but it's what they said. So, a dwelling has to become a non-dwelling and then (the next time you use it for collateral) it's not a dwelling.

Issue #2: Another scenario we frequently run into are loans secured by structures originally designed as dwellings, but have since been abandoned and currently in such poor condition that there is no intention for the structure to be used as a dwelling. In these cases, the intent is not to improve the structure for it to be lived in; rather, the property which happens to include the structure is being used for a different purpose. The structure originally designed as a dwelling will not be used for any purpose; rather, it merely comes with the land that the borrower wants to purchases, for example. Do structures that are in such poor condition that there is no intent for someone to dwell in still fall under the definition of a dwelling? Here are some examples of structures originally designed as dwellings, but obviously no longer intended to be used as such: https://i.pinimg.com/originals/af/ba/5c/afba5c61cee73d4db377da0d12705656.jpg

The attorney looked at that picture and said it was still a dwelling. Honestly, I want to throw up, but at least we have a bright line test. It's not sensible, but it is something you can consistently apply. If a building was ever inhabited, it is a dwelling even if only cockroaches and rats are the ones willing to inhabit it. I've lost all faith in common sense on this one.

There you have it. For those of you that already believed this - congratulations and thanks for challenging my responses.

I am now fully convinced the world has gone mad. I disagree with the logic on both of these, but it doesn't matter. I will comply.

That's a real 2020 answer.

I've been lurking in this thread and find the discussion very interesting. Thank you for reaching out and relaying the CFPB's responses, David. IMO, this is just another case where "the spirit of the regulation" takes a back seat to the real world and doesn't matter as long as meaningless technicality works against us. R.I.P. common sense.

Thank you David for contacting the CFPB for us to get some sort of clarification on this issue. I will copy and save this summary for future references.

Sweet. I guess when EVERYONE told me I was wrong at the beginning of the thread, jokes on them .

Jokes aside, this is great that they have made it clear, though I agree not necessarily all that logical, though as I have argued from the beginning, this is where a literal interpretation of the Regulation, Official Interpretation, and the FAQ leads. I would still be concerned about getting an FRB/FDIC/OCC/NCUA examiner with their own take on the issue, but this clearly seems to be the position of the CFPB and they have Rulemaking authority. Hopefully, they will add this to the existing FAQ's. I still need to send my note and see if a different answer arises.

I consider myself a literalist too......and when i literally read the definition of "residence" and "residential property", i can't get myself to the place that the CFPB has gotten themselves to. But yeah, it's obvious now that that is the stance they're taking.

I still say.....by taking this stance, they have created incongruity with their own definitions (or lack of definitions, which then default you to the dictionary). I think such a stance and FAQ should require an addition to their definitions. Personally, i don't care much for regulating by FAQ and email. I prefer regulating by the words in the regulation.

FWIW, these are the pictures I used in my question about qualifying as a "dwelling."

https://www.alamy.com/stock-photo-d...cottage-with-roof-caved-in-16547453.html

https://3xnhi43vikn244hoyg160zl4-wp...5955_web1_180308-NAL-house-collapse1.jpg

https://www.picfair.com/pics/062961...private-country-house-with-caved-roof-in

Oh, yeah! We'll move right IN, NABW!

With this illogical, but clear bright line test, of what a dwelling is, Compliance Officers all get to look like fools when they tell their loan officers they have to do HMDA on these non-dwellable dwellings. Compliance Officers already get a bad rap from loan officers about how ridiculous "our" rules are. It doesn't matter to a loan officer that you say "I don't make the rules" they still see the Compliance Officer in a negative way in cases like this. Sad.

I agree that this conversation has been enlightening and thanks to everyone who reached out to the Bureau to get answers. Now I just wish they would say why those are considered 'dwellings' when they have been abandoned for years and falling in on themselves, yet a MH constructed before June 15, 1976 (I think I got the date correct) is not a dwelling under HMDA. Mind you, I like that exemption because there have been several loans we have not had to report because it was not a 'dwelling' under HMDA, but these MHs were in much better shape than the pictures the Bureau considered dwellings.

Along those same lines CloudShape:
A houseboat, where someone resides as their permanent residence, is not a dwelling.
A MH Park is a dwelling even if the park only has pads and no actual MH's on it.
A loan to someone to build a spec house is not reported, but a loan to flip a house is.

A loan to buy a house and turn it into an office is reported, but a business operating loan (non-dwelling related business) secured by the business owner's house, it is not reported.
If I refinance that same business operating loan, it is reported.
A home improvement loan to a farmer to improve their home (located on the farm) is not reported.
A home equity loan to a farmer (using the house located on the farm) is not reported.

*I just quickly typed these inconsistencies / illogical scenarios off of the top of my head. I'm sure there are more.

Thank you David. That was a quick response. I appreciate all you do!!

Sorry John - I obviously did not even think about the timing of his post and my question. Looks like he got a quick response this time.

Spoke with the CFPB contact today. He seemed to allow for some leeway in terms of not considering a structure to be a dwelling based upon the condition of the property. However, he noted that the definition does not offer any examples of exclusions based on habitability. He mentioned Detroit as a reference for where purchasing dilapidated homes and razing them for new construction, or other purposes, would be something that housing advocates, etc. would want data on. Basically, the general stance was that if it was ever a residence people lived in, then, unless it had already been converted to one of the excluded structure types, a borrower is purchasing a dwelling under HMDA in these scenarios. He stated that any deviation should be documented in your CMS and properly supported to show your examiners why you didn't consider such a "jacked-up" building to not be a "dwelling."

I'm now curious why spec home construction is excluded from reporting at all, based on their current views.

I'll offer for the last time: i don't see why the "examples" need to specifically make an exception for "habitability" when the definition of "residence" and "residential property" contains that exception....i.e., if a structure cannot support someone to the point that they can live in it, it isn't a residence, nor residential property. Obviously, the folks you are talking to at the CFPB don't care about this......but it's very obvious to me. "Gee, where are the examples in the regulation about dilapidated houses?" Why do you need such examples, when you have definitions? I'm sorry.....makes zero sense to me.

I'm now curious why spec home construction is excluded from reporting

They are excluded under the temporary financing exemption; not because they are considered non dwellings.

A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

I didn't think they were considered non-dwellings.....i'm just stating that it seems odd to me with all of these statements about needing to keep tabs on the "housing activities" of such things as razing old, dilapidated dwellings, why ANY loan secured by an actual dwelling doesn't need to be reported to keep the CFPB up to date on "housing activities".

So now spec home construction is exempt.....but razing a structure that was a home 140 years ago and then constructing a spec home is not exempt. That's where my question is coming from really, since that makes no sense to me. A spec home loan has imminently more to do with housing needs and activities than a loan to raze a "dwelling" and build a pet store. But the spec home loan is not reported....the pet store loan is (at least if you listen to the CFPB).

Basically, because it is land only once you start the build and the purchase pf the spec home is likely caught on the back end with a reportable transaction. That would seem to be how the Regulators look at it, but I agree with you as a spec home could also be purchased with cash and, thus, never be reported.

I imagine that notwithstanding David's report of the Bureau's response to his well-worded inquiry, this discussion will continue in other venues until the Bureau issues something official on these questions.

To be fair, HMDA and Reg C have always been problematic going back even to the old regulation.

The thing with these definitions is they do not come from HMDA. There are plenty of other instances where a dictionary definition doesn't match a Compliance Regulation definition. Where in the dictionary definition of "Purchase" would you find standing for initial construction of a home where you already owned the lot?

Where in Reg. C does it give a definition of "residence" or "residential structure"? Without a definition for those, do we not have to default to the dictionary?

Just a grand example of how convoluted regulations can become. I think of all the mobilehomes turned storage buildings and recently one I had which is an old gas station that is used as a dwelling.

This whole contradiction now makes me rethink the gas station. I reported as a dwelling because that's exactly what it's used for. Designed for? No.

I actually know of two of these exact situations in my area. Wonder what the bureau would consider those commercial-structures- used-as-dwellings to be. HA.

I am hoping for a bit of clarification for whether or not to report in the following scenario, please:

We had an original loan for a lot purchase that the SFR was to be razed, which we reported it for HMDA. Now, there is a loan for the construction of two new spec homes on the lot which has been designated as a horizontal property regime. Some of the funds on the new loan were used to pay toward the previous loan, but not pay it off.

So here are my many questions:

1. Would you considered this a reportable transaction?
2. If it is reportable, would it be a refinance even though the prior loan was not fully satisfied and replaced?
3. If not reportable, would it be because the new loan is for a spec home build or because the new loan didn't fully replace the prior one?
4. Does the horizontal property regime come into play at all? Each new loan is for the separate "A" and "B" dwellings.
5. If the new loan fully satisfied and replaced the prior one, would you report it as a refinance or not at all because it is now a draw down loan to build the spec home?

I would appreciate any help that you can give. Thanks!

*bump*

Does anyone have thoughts on this? I could really use the help, since I have multiple loans with this same scenario.

"horizontal property regime" - you mean these are condominiums?

They are not. They purchase the lot with a dwelling that they tear down and then build two houses on that lot that are a front house and back house scenario. They are not attached and end up being addresses similar to 1234A and 1234B.

Randy - these are occurring locally in Nashville as part of the gentrification of various areas. They are generally tall (3 story) and skinny houses.

But these are still planned unit developments - similar to a condo: https://www.lawserver.com/law/state/tennessee/tn-code/tennessee_code_66-27-103

IMHO - These would be reportable as a purchase loan, regardless of the refinance that is happening, if they are not temporary construction loans.

3. Purpose—multiple-purpose loan. Section 1003.4(a)(3) requires a financial institution to report the purpose of a covered loan or application. If a covered loan is a home purchase loan as well as a home improvement loan, a refinancing, or a cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the loan as a home purchase loan.

It is the same borrower on the new loan to build the spec homes as the previous one to buy the lot with the house on it that they tore down. Can you clarify why you believe purchase would be the purpose? I see it as possibly a refinance, but the concern is that they only paid down the lot purchase loan, they didn't pay it off with the new proceeds. We have quite a few and I am trying my best to simplify it in here, but they really are difficult to follow. My gut is thinking that the new loan to do the spec homes would not be reportable at all, but I wanted to get some other opinions, just in case I am way off base.

3. Purpose - multiple-purpose loan. Section 1003.4(a)(3) requires a financial institution to report the purpose of a covered loan or application. If a covered loan is a home purchase loan as well as a home improvement loan, a refinancing, or a cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the loan as a home purchase loan. If a covered loan is a home improvement loan as well as a refinancing or cash-out refinancing, but the covered loan is not a home purchase loan, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a refinancing or a cash-out refinancing, as appropriate. If a covered loan is a refinancing or cash-out refinancing as well as for another purpose, such as for the purpose of paying educational expenses, but the covered loan is not a home purchase loan, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a refinancing or a cash-out refinancing, as appropriate. See comment 4(a)(3)-2. If a covered loan is a home improvement loan as well as for another purpose, but the covered loan is not a home purchase loan, a refinancing, or cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a home improvement loan. See comment 2(i)-1.

3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.

At the time you do the 2nd loan, what is your collateral? Just the lot with the torn down house, or does the to be razed house still exist?

At the time of the second loan, the house was already gone. The collateral is the lot. I do want to add that the collateral was always just the lot, according to the approval/documentation. However, when the appraisal was provided to us, it very clearly had an existing dwelling in each of these scenarios. Not that it makes a difference, but all of them would have been habitable. The decision I ended up making was to not report and to treat it as a new loan for a spec home build. Do you feel you would have done the same?

This is a bit of a strange situation, but here's my reading. Spec homes are excluded under 1003.3(c)(3) - Comment 2, which limits the exception to instances when the funds are "extended to a person exclusively to construct a dwelling for sale." Sounds like yours was to pay off some debt as well, so it doesn't fall under the exemption in my eyes, and would be a reportable purchase as a non- spec home construction loan.

I agree

You have a loan where funds will be used to construct a dwelling. Your current collateral is the bare lot, but you know the funds will be used within 2 years to construct a dwelling (I'm assuming it will take place reasonably fast). The loan will not be used exclusively to construct a spec home, but only somewhat because some of the funds paid off existing debt. In the HMDA waterfall you would start with Home Purchase. It would not be a refinancing regardless because it doesn't satisfy and replace the lot purchase loan.

[12 CFR 1003.3(c)(2) Official Interpretation
1. Loan or line of credit secured by a lien on unimproved land. Section 1003.3(c)(2) provides that a closed-end mortgage loan or an open-end line of credit secured by a lien on unimproved land is an excluded transaction. A loan or line of credit is secured by a lien on unimproved land if the loan or line of credit is secured by vacant or unimproved property, unless the institution knows, based on information that it receives from the applicant or borrower at the time the application is received or the credit decision is made, that the proceeds of that loan or credit line will be used within two years after closing or account opening to construct a dwelling on, or to purchase a dwelling to be placed on, the land. A loan or line of credit that is not excludable under § 1003.3(c)(2) nevertheless may be excluded, for example, as temporary financing under § 1003.3(c)(3).]

[12 CFR 1003.2(j) Official Interpretation
3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.]

One thing you didn't mention was if the current loan will be taken out later by permanent financing. If this is the case, then the loan would not be reportable due to being "temporary financing," otherwise though, I would agree with Inherent_Risk and consider this a Home Purchase loan.

Compliance NABW: If you are asking about the new loan for the same builder to construct the spec home on that lot, it of course will be sold to a buyer and it will not in any way be the same borrower (the builder) for the actual permanent financing.

So, you are choosing Purchase because of the exclusivity portion of the spec home exception? Since the builder paid down the original lot loan with some of the funds, you no longer accept the new loan as being "extended to a person exclusively to construct a dwelling for sale," correct? I can understand that. Not sure if I want to agree with it, but can understand your take on it.

I don't know why I didn't catch the response @Libelle, but if the intent is to sell it to a borrower within the time of the initial loan, then it wouldn't be temporary financing.

Yes, you are correct. The loan is not being used EXCLUSIVELY to construct the spec home because of the payment towards the previous lot loan. The transaction is, therefore, reportable and is a Construction loan not being replaced by Permanent Financing, so it is a "Home Purchase" per the Regulation.