Another Temporary Financing Question

Posted By: Anonymous

Another Temporary Financing Question - 10/08/05 04:18 PM

New to HMDA, have a hypothetical.

If an interest only loan is made for, lets say 6 months, with a new home as collateral, and will be paid at maturaty with an inheiritance the the customer is expecting to recieve in the near future, is this temporary financing because it's not regular income that will be the source of repayment?

Thanks.
Posted By: SMQ, CRCM

Re: Another Temporary Financing Question - 10/10/05 12:26 AM

Do a search using "temporary financing" (with the "") and Dan Persfull in the username field and you will find a lot of discussion on temporary financing.

Remember it is not the term of the loan that determines it but rather the source of repayment.
Posted By: Anonymous

Re: Another Temporary Financing Question - 10/10/05 12:06 PM

I'd say it was temporary financing because of the source of repayment. I remember Dan saying that if it's not regular income paying it back but like from the sale of your home, or a bonus of some kind it was temporary- an inheritance would be considered not regular income so I say its temporary financing.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 10/10/05 02:09 PM

Original Anon - there has been a lot a discussion concerning temporary financing in the threads with David Dickinson and myself leading the majority of them. HOWEVER, I am suggesting you contact your primary regulator for their current guidance on temporary financing. Another poster recently shared a letter with me that came out of the FDIC KC Regional Office which totally contradicts a bulletin that came out of the FDIC Chicago Regional Office. I have contacted my lead examiner and have asked them to contact DC and see if they can get a consensus of opinion. When, or if, I get a response I will share it.

Now in the meantime (until I get a contradiction from my examiner) - to try to make the decision whether the loan is temporary financing or not as easy as possible - if the loan will be paid from the sale of an asset or from another financing arrangement (loan) then the loan is temporary financing. If it will be paid from any other source it is "permanent" financing.

However, I will stress again that you should contact your primary regulator for their interpretation because there does appear that the regulators cannot even agree among themselves.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 10/10/05 02:23 PM

Here'e a portion of my letter:

There appears to be a lot of confusion in the banking world on what constitutes temporary financing and what does not when it comes to HMDA reporting.

I have always based temporary financing on the primary source of the repayment. In other words, if the loan is to be repaid by another loan, or by the sale of an asset then the loan was temporary financing. However if it was to be paid from an income source such as regular salary, a year end bonus or cashing in a CD or stock certificate then the loan would be reportable. The attached SCANS bulletin appears to support that position as well as the attached email response from XXXXXXX (see below). However, the attached bulletin from the KC FDIC Regional Office appears to take another approach.

The following paragraph in the letter from the KC Regional Office is particularly disturbing to me.

At the outset, we note that Regulation C uses the phrase “such as bridge or construction loans,” in its definitions of temporary financing. The inclusion of this phrase would seem to suggest that other types of temporary financing besides bridge and construction loans may qualify for the exclusion; however, we have found no authority for such a conclusion. Moreover, our discussion with staff attorneys for the Board of Governors of the Federal Reserve System confirmed that their interpretation of this provision exclusively limits this “temporary financing” exclusion to actual bridge or construction loans.

Please forgive me for the following statement, but what were these people on when they made this determination? No where in Regulation C or in the A Guide to HMDA Reporting Getting It Right does it define the term “temporary financing”. It only refers to “temporary financing such as construction loans” or “temporary financing such as bridge or construction loans”. They could just as easily have said such as a 90-day term. Furthermore on page 9 of the A Guide to HMDA Reporting Getting It Right under Transactions Not to be Reported it states:

The following transactions are excluded from reporting under HMDA:

Construction loans and other temporary financing (but construction-permanent loans must be reported).


In my humble opinion this makes it clear that other temporary financing loans qualify for the exemption.

When different regions of the same regulatory authority are taking different stances on a regulatory issue it is an indication that there is also possible confusion among the examiners and there should be further clarifications for the appropriate requirements issued by the D.C. office.

Obviously I feel that the SCANS, XXXXXX and my interpretations are the correct ones, however I would appreciate you forwarding this to the appropriate people, or if you prefer, advise me of the person you feel I should send this to and I will contact them to see if we can possibly get a consensus of opinion. Until that time, or until instructed by you, I will continue to operate under my current interpretation.
Posted By: Anonymous

Re: Another Temporary Financing Question - 10/10/05 07:44 PM

Dan,

I must respond Anon. because of fear of the many Midwest bankers in the the FDIC-KC District wanting to criticize the June, 2005 opinion letter regarding HMDA-reporting for both temporary loans and refi's.
First of all, for the KC-FDIC to send out the interpretation in the middle of a reporting year was ridiculous. Some local banks have already scrubbed their 2005 data back to January, 2005 and added temporary-type loans/denials and deleted some loans that they thought met the refi-test.
On the other hand, some banks have decided to ignore the KC FDIC's letter and not add these temporary-type loans and also they haven't deleted any loans because of the interpretation of refi's. They are basing this on the existing interpretation/guidance for both issues; temporary financing and refi's. They believe the regulation and Commentary will be on their side when KC FDIC office wants to pick a fight about why the loans were not included/excluded on the 2005-LAR (although it may cost some money to fight the FDIC!). Some bankers say they will use the ombundsman in the event KC-FDIC plays hardball, but I'm not sure that is the purpose of that person(?)

It is really a mess.

For those FDIC-regulated banks out there, just be thankful you are not in the Kansas City district. But be forewarned, the interpretations may spread to an FDIC district near you and you will have decisions regarding what you will do with your 2005 HMDA-data.
But how ludicrous is it that one district office interpretation isn't shared by any other FDIC office (or any other regulatory agency) in the country? Everyone is hoping that FDIC-Washington will step in fairly soon to straighten this out. The March 1st reporting date will be here before we know it, but some are saying KC FDIC will not want to publically admit to its' mistake.

Should be interesting..........
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 10/10/05 07:58 PM

Quote:

Should be interesting..........




I think that's the understatement of the day.
Posted By: rlcarey

Re: Another Temporary Financing Question - 10/10/05 11:12 PM

I guess I have to fall on the conservative side here as I have never heard of basing the determination on whether a loan is temporary solely based on the source of repayment, specifically on the premise of a possible sale of the asset. If you finance a piece of property for two-years and the borrower says they are planning to sell the property to pay off the loan, I have a hard time buying that would qualify as temporary. A bridge loan or construction loan is really a different animal - everything is in the works for an actual pay-off of the loan. In the other scenario - how can you say what is going to happen - do you require the borrower to continually list the property, etc. I have seen this before and had these "temporary loans" renewed two and three times without the property ever even being listed or sale.
Posted By: Princess Romeo

Re: Another Temporary Financing Question - 10/10/05 11:49 PM

Randy - It's doubtful a bank would book a 2 year real estate loan with no interim payments or principal reduction.

Where the road gets sticky is when we have these 6 month deals with regular payments being made from income or revenue. These loans would not be considered temporary.

However, a 6 month loan that is made on the anticipation of being paid off with another loan or sale of the property would (to a normal and resonable person) be a temporary loan.

However, it is not a simple matter of saying "All loans iwth less than X months term will be considered temporary loans, and all loans in excess of X months will NOT be considered temporary."

That would be a nice easy definition that would leave little doubt, but may also lead to some bizarre situations being reported on HMDA and subject to RESPA.
Posted By: rlcarey

Re: Another Temporary Financing Question - 10/11/05 01:22 AM

Well there seems to have been a lot of discussion about this lately and some the conclusions have left me with an uncomfortable feeling.

This one for example

I just think that looking at the disposal of an asset for payment is not a good acid test for temporary financing.

P.S. - You would be surprised how many interest only two-year notes I have seen lately. Everyone is trying to play the real estate bubble - unfortunately, when the bubble pops, the banks that are doing this are going to take it in the shorts
Posted By: Anonymous

Re: Another Temporary Financing Question - 10/11/05 01:24 PM

Randy,

The guidance from the KC FDIC office specifically discusses what is called "splash and dash" loans. I had never heard the term until they used it. Someone buys a property that needs some "splash and dash" ----fix-up, new paint, new carpeting, etc. The owner then sells (flips) the property in 3-6 months after it has been all "dolled-up" and makes a quick profit on the sale. The loans will be taken-out by purchase mortgages.The KC Office is telling their midwestern banks to report these short-term "splash and dash" loans on their HMDA-LAR!
Most bankers (and the FED- Jane Gell Managing Counsel of the Federal Reserve Board) believe that this interpretation is ABSOLUTELY incorrect. What no one can understand is what is the KC FDIC doing interpreting the FED's regulation and more importantly, why isn't the FDIC's interpretation required for all FDIC-regulated banks????????

This is the kind of stuff that makes a compliance officer's job more complex and tougher than it already is.......
FDIC supposedly wants to be a "partner" with their banks. If this is what they are bringing to the relationship, I want a divorce and have suggested to management that it might be time to look at a possible charter change.......
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 10/11/05 03:10 PM

I just received an email from my examiner and apparently I'm not the first to contact them concerning the KC ruling.

They are attending a session in Nov in the Chicago RO and this topic is supposedly to be discussed. So I will have to wait until then to see if we get any further clarifications.

FWIW, I was not instructed by my examiner to change my reporting procedures.
Posted By: rlcarey

Re: Another Temporary Financing Question - 10/12/05 02:14 AM

IMHO - Even a splash and dash loan would not be temporary financing. There are two many variables and no actual plan in place to make this a temporary loan. A drop in real estate values and you and the borrower are going to be stuck with this loan for a long time. I my opinion, a temporary loan is one where there is already an established out - such as construction financing and you have a take-out commitment in your hand. I see as it more similar to the definitions found in RESPA. If you don't have a commitment in your hand - you have to be considering it as permanent financing.
Posted By: Anonymous

Re: Another Temporary Financing Question - 10/12/05 01:18 PM

Quote:

IMHO - Even a splash and dash loan would not be temporary financing. There are two many variables and no actual plan in place to make this a temporary loan. A drop in real estate values and you and the borrower are going to be stuck with this loan for a long time. I my opinion, a temporary loan is one where there is already an established out - such as construction financing and you have a take-out commitment in your hand. I see as it more similar to the definitions found in RESPA. If you don't have a commitment in your hand - you have to be considering it as permanent financing.




Very interesting, but your thoughts still conflict with the CHIRRO(?) from the Chicago FDIC that Dan was referring to in the post above.

Hopefully, this will get straightened out one way or another in the upcoming meeting in Chicago that Dan also referred to.

And as to the issue of the banks that already changing their 2005 data based on the letter, (i.e.adding the splash and dash loans, deleting some loans that they thought met the refi test) they did it because they read that it was required per the letter. In other words "your 2005 data better reflect our (the FDIC-KC Office) opinion or else........
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 10/12/05 01:39 PM

Quote:

A drop in real estate values and you and the borrower are going to be stuck with this loan for a long time. I my opinion, a temporary loan is one where there is already an established out - such as construction financing and you have a take-out commitment in your hand.




Based on this comment Randy, then in your opinion a bridge loan would not be temporary financing because as you said a drop in the real estate market could have an effect on the sale of the residence. However bridge loans are mentioned as temporary financing in HMDA.

I don't totally disagree with the analogy as the intended temporary loan could become permanent financing dependent on the market. However, the loan would not be reported until the intended temporary loan was flipped to a permanent loan.

At this time I have the support of the Chicago Regional Office and my lead examiner, therefore until Chicago or D.C. issues a different opinion I will continue reporting as I have.
Posted By: Anonymous

Re: Another Temporary Financing Question - 10/12/05 01:59 PM

Quote:

A two year loan for the purpose of converting from a construction to a perm. It is an investment property and the owner wants a loan until the house is sold. The construction portion was financed by us.




Including this situation as you opined in a previous post - since I have not seen the Chicago letter - how can you justify calling this temporary financing - where do you draw the line??
Posted By: Anonymous

Re: Another Temporary Financing Question - 10/12/05 02:27 PM

Dan,

Even though you are in the Chicago region, those of us in the KC region appreciate your involvement (and David D) in trying to get this issue resolved.

Thank you.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 11/15/05 09:16 PM

I just received the following email:

Hi Dan,

We had the training last week where I brought up this issue. Nobody there was able to answer it, so it is going to personnel in the FDIC Washington, DC office. I’ll let you know when I hear something.
Posted By: Laketime

Re: Another Temporary Financing Question - 11/23/05 03:42 PM

Last week someone told me that they thought the FDIC also sent the "splash and dash loans as 2005 HMDA-reportable" letter to banks in their Dallas region/ and/or Denver field office(?). Not sure when the letter was supposedly sent (I know in the FDIC KC Region the letter was dated June 8, 2005).
Can anyone verify that the letter was also sent to FDIC-regulated banks in the FDIC Dallas region/Denver Field office?

Thank you.
Posted By: Ben Hicks

Re: Another Temporary Financing Question - 11/30/05 01:27 PM

Part of the temporary financing issue has been handled by a recent HMDA FAQ update 11/21/05. We have always treated loan to be paid by the sale of an asset as temporary financing so this one coming at the end of the year is disconcerting. Rather than handle this issue piece meal I wish they would go through 10 examples or more on this subject.

HMDA FAQ
". A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. "
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 11/30/05 02:47 PM

Here's the full text of the Q&A:

Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?

Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).

I'm not going to let this die until I hear something "concrete" from my regulator.
Posted By: rlcarey

Re: Another Temporary Financing Question - 11/30/05 03:01 PM

Quote:

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




I don't know how much more concrete you are going to get out of them. This would indicate that these short-term "splash and dash" based on the sale of the asset are not temporary.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 11/30/05 03:30 PM

I've sent them, HMDA Help, an email for further clarification on the FAQ along with exerts from my email to my regulator outlining my position and a copy of the bulletin from the Chicago Regional Office.

The FDIC bulletin was clear, or at least in my opinion, that the sale of as asset was a determining factor.

. . . At the time the construction or bridge loan is extended the bank knows that it will be paid from another loan or an asset sale. . . .

Until I have a reply from the FDIC, I will continue reporting as I am.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 11/30/05 08:29 PM

Can anyone decipher the following response from HMDA Help?

Construction loans or other temporary financing is not HMDA reportable, however, construction-permanent loans are HMDA reportable.

There is no definition of temporary financing provided by the Regulation. Rather, the Regulation only offers examples of temporary financing - - construction loans and bridge loans. HMDAHELP cannot define temporary financing in terms of time nor create a temporary financing definition. Rather, each institution must establish criteria to be used to evaluate whether a loan is temporary financing. This temporary financing criteria/litmus test should then be used by that institution consistently.

An institution that is questioning whether an application/loan is 'temporary' needs to look at all the factors closely. Each loan in question should be looked at on a case-by-case basis. Because the maturity is short-term does not necessarily mean it is 'temporary'. Temporary financing is not intended to be a permanent arrangement; it's a stop gap. Or it's a 'patch' (like a bridge loan) that gets you to the next loan, which is usually permanent financing. Any applications/loans that function like construction loans or bridge loans should be treated as temporary. If an institution originates a loan to the applicant and the institution and applicant know/expect the loan has to be replaced by permanent financing, then the initial, originated loan is temporary.
Posted By: Reed

Re: Another Temporary Financing Question - 11/30/05 09:06 PM

What about a short term loan that is to be paid when the customer gets his tax return? Is that regular income? Is that bridgeing the "gap"?
Posted By: Reed

Re: Another Temporary Financing Question - 12/05/05 05:12 PM

funny thing, the above question WAS hypothetical until just now, I know there are different opinions, but would you report a 6 month loan, purpose: new garage, repayment: tax return?
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/05/05 05:24 PM

Yes.
Posted By: Reed

Re: Another Temporary Financing Question - 12/05/05 06:32 PM

thanks
Posted By: CRAatBOK

Re: Another Temporary Financing Question - 12/07/05 10:20 PM

I was in a training session yesterday in KC and a person that had been examined recently by the FDIC said that they made her reclassify her "splash and Dash" loans as HMDA. It goes against their own definition. I haven't heard from the OCC that they are making the same (mis)interpretation of the definition. I hope I don't because we do a lot of those type of loans.
Posted By: David Dickinson

Re: Another Temporary Financing Question - 12/08/05 12:56 PM

The FFIEC revised their FAQ again. There is a revised Q&A on Temporary Financing that I believe is specifically in response to the “Splash and Dash” issue from the FDIC. However, here's the twist: they are agreeing with the FDIC!
-----------------------------------------------------------

Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?

Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).

You can find the entire FAQ at the FFIEC website:
here
Posted By: GreatBlue

Re: Another Temporary Financing Question - 12/08/05 02:39 PM

Dave,
When you say "agreeing with the FDIC", do you mean the examiners that are telling banks to reclassify "splash & dash" as HMDA reportable as indicated in KCGeoQueen's post, or do you agreeing with the Chicago FDIC bulletin Dan is relying on that says loans to be paid off by an asset sale are considered "temporary" under HMDA?
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/08/05 02:47 PM

It appears to be siding with the letter issued by the KC RO interpretation which contradicts the Chicago RO interpretation.

Anyways, I sent another email to my examiner this morning:

I have not heard anything from you concerning this, but the following Q&A is now appearing in the FAQs on the FFIEC’s Web site:

Temporary Financing. When is a loan "temporary financing" such that it is exempt from reporting?

Answer: The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h).

I’m not sure if this is a response by the HMDA Help people, which I don’t put too much faith in, or if it is an interagency response. Of course you know my position does not agree with the answer.

Have you heard anything from the DC office? If the DC office sides with the above response, which I’m hoping they do not, will we be required to go back and try to identify these loans that were considered temporary financing based on the content of the SCANS bulletin and enter them on the LAR this late in the year?

I have always prided myself in my understanding of HMDA and it took me three years to get our bank up to speed, so I sure would hate to have to “re-train” on temporary financing.

As always your help and comments will be greatly appreciated.

Thanks,
Dan
Posted By: SMQ, CRCM

Re: Another Temporary Financing Question - 12/08/05 03:11 PM

So now it sounds like that the only "temporary financing" (& therefore not HMDA reportable) is a loan that we make knowing that we are going to make another loan that would be reportable. Would you agree with this statement?
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/08/05 03:27 PM

Would I agree - absolutely not - but not sure if that means anything at this time.

But you are correct - they are saying the only temporary financing loan is a loan that will be replaced by a new "permanent" loan. Yet in their email response to me, see above, they claim they can't define temporary financing.
Posted By: Denovo Co

Re: Another Temporary Financing Question - 12/08/05 05:04 PM

We are an FDIC regulated bank and just had our compliance exam in which I was told by the examiners that "under no other circumstances should a loan be considered temporary unless it is a bridge loan or a construction w/o perm financing. Period. I had a 2nd DOT loan for 6 months, interest only, HI, AND a committment from a mortgage lender for a total refinance. Examiners stated that it was still HI and should have been reported as such, since it was NOT a bridge loan or an initial construction of the dwelling. They said they 'understood' my thought process but I was still wrong. I put it on my LAR.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/08/05 05:17 PM

I would still be arguing on this one - a bridge loan does not necessarily have to apply only to purchase transactions. A bridge loan bridges the gap until other financing arrangements can be made. What you described definitely sounds like a bridge loan and temporary financing.

Of course, once I get the final opinion from my lead examiner (once she hears from DC), I may be eating crow.
Posted By: David Dickinson

Re: Another Temporary Financing Question - 12/08/05 06:23 PM

Sorry for the delay. I'm on the road today teaching BSA seminars (I'm in a hotel lobby right now).

GreatBlue: Sorry for the confusion. I'm referring to the FDIC's "Splash and Dash" interpretation.

This is nuts. Read the 2nd sentence of the answer to the FAQ: Construction and bridge loans are illustrative, not exclusive, examples of temporary financing.
Now, compare that to what the FDIC (KC RO) is saying [Like IMSHY stated] "under no other circumstances should a loan be considered temporary unless it is a bridge loan or a construction w/o perm financing. Period.

How do you reconcile these two statements?

The other thing that is crazy is that this is not a small change, yet they issue it mid year and hide it in a FAQ. This is huge! The 3 page FFIEC memo doesn't even mention it. No further explanation or examples. Bankers & examiners will be confused for years.
Posted By: sugarbaby

Re: Another Temporary Financing Question - 12/14/05 02:49 PM

We are an OCC regulated bank in southeast Texas. Last Friday I emailed one of the examiners that has been on the force for many years concerning the FFIEC Q&A and temporary financing. He ran my concern up the flagpole to their Washington office for a response. The response that he got was that the OCC does not necessarily agree with the example in the Q&A and that the OCC has asked the FFIEC HMDA subcommittee to review the matter and provide clarification. The examiner also advised me not to change anything that we are doing as far as input to our HMDA LAR until that clarification is received.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/14/05 02:58 PM

Quote:

the OCC has asked the FFIEC HMDA subcommittee to review the matter and provide clarification.




Great, maybe with this, and with the FDIC following up, we can get this resolved one way or the other.
Posted By: Bullseye

Re: Another Temporary Financing Question - 12/14/05 03:39 PM

FWIW, we are in the FDIC KC Region & were told this was coming during our last exam (4/05). Supposedly their reasoning behind this is that a "splash & dash" type loan really meets the definition of a HMDA loan (home purchase) and the true intent of HMDA is to have all of these loan types reported. A bridge loan would be exempt because the permenant financing would be reported, same goes for a construction loan. But a splash & dash would never get reported, therefore, should be reported even though the term is short & it is not to be paid with regular income. Our EIC said at that time their decision was pretty firm & not to expect them to change. I have done my LAR accordingly this year, but flagged every line that would need adjusting just in case the rules change.

I agree with Dave that this is a major change that has gotten very little attention. We do quite a few of these loan types so I am looking at quite an increase in HMDA reportable loans this year. That outta help us a little in our next CRA exam I guess!
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/14/05 03:47 PM

Quote:

A bridge loan would be exempt because the permanent financing would be reported, same goes for a construction loan.




I disagree with this reasoning;

1. You may not do the permanent financing, therefore it would not be reported by you but by the entity that does. It would also be possible for the construction loan to paid by cash, therefore the loan would never be reported.

2. The entity doing the permanent financing on the "splash and dash" will report it, therefore it is still getting reported.
Posted By: Bullseye

Re: Another Temporary Financing Question - 12/14/05 03:56 PM

I didn't say I agreed with them! She just kept on instisting that a splash & dash loan type will never be reported when it is a purchase and should be. I agree that there are several situations in which it could be, just as there are several situations in which a construction or bridge may end up not being reported if there is no permenant financing. So I guess it's a wash??

I can't tell you why they are thinking along these lines at all. When it was presented to me that the change was coming, I pushed them to explain to me why & that was the response I got. I am thinking that becoming an OTS bank is sounding really good....they are quiet on this issue, $1 billion CRA threshold........hmmm......
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/14/05 04:06 PM

I was saying I disagree with their reasoning.

Quote:

She just kept on insisting that a splash & dash loan type will never be reported when it is a purchase and should be.




Again I disagree with their reasoning. When the "splash and dash" goes to permanent financing, whether by you or another entity, the permanent loan is reported as a home purchase, not a refinancing.
Posted By: Bullseye

Re: Another Temporary Financing Question - 12/14/05 04:12 PM

Agreed. But I think that she was more talking about properties that are flipped. Bought, fixed up & sold within the six month period, no permanent financing needed. Those never appear on the LAR and apparently, she feels as though as a home purchase, they should be.
Posted By: RVFlyboy

Re: Another Temporary Financing Question - 12/14/05 04:24 PM

Quote:

Agreed. But I think that she was more talking about properties that are flipped. Bought, fixed up & sold within the six month period, no permanent financing needed. Those never appear on the LAR and apparently, she feels as though as a home purchase, they should be.



For what it's worth I do agree with this reasoning.
Posted By: Reed

Re: Another Temporary Financing Question - 12/14/05 04:24 PM

just for the sake of argument, what if a persons main source of income comes from "flipping" properties, wouldn't the loan be paid from "ordinary income"?
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/14/05 05:19 PM

I started at this bank in March 2001 after being out of compliance for 5 years. The following is an email exchange with HMDA Help in May 2001. It took some digging to find the hard copies.

Our bank makes “construction loans” to individuals or business entities to construct or to purchase and renovate homes for resale.

Generally these loans are set up on 6 or 12 month notes. If the home has not sold at the end of this period we will then (depending on the circumstances) make a 3 – 5 year commitment on 12 month notes with interest paid monthly, quarterly or semi-annually until the home has sold. If the home has not sold at the end of the commitment we then will require the loan to be converted to permanent financing.

1. Does the fact we are making a 3-5 year commitment make these loans reportable?
2. When these loans are converted to permanent financing are they reported as refinances or home purchases?

Thank you,
Dan Persfull

As long as the loan is considered “temporary financing” (they used the “” in the reply) then it is not HMDA reportable. To report the loan as a refinancing the original obligation would have to be replaced with a new obligation. If the existing obligation is only renewed, modified, extended or consolidated the transaction is not refinancing for the purpose of HMDA (pp D-1 section 1(c) 2 of the Getting it Right Guide). When you convert the temporary financing to permanent you would report it as a home purchase loan.

Thank you for using HMDAHELP. I hope this information is helpful.


Based on this reply from 2001, and the FDIC SCANS bulletin issued May 2002 from the Chicago RO you can see why I am so adamant in my stance on this issue.
Posted By: RVFlyboy

Re: Another Temporary Financing Question - 12/14/05 05:27 PM

I don't disagree that the new information coming down is a change in stance from what was previously told to you, Dan. But I'm saying I agree with the change and the need for it. I believe that given today's real estate market, that former stance now loses many loans that should be considered home purchase loans and should be part of the data system.
Posted By: Bullseye

Re: Another Temporary Financing Question - 12/14/05 05:30 PM

Quote:

Quote:

Agreed. But I think that she was more talking about properties that are flipped. Bought, fixed up & sold within the six month period, no permanent financing needed. Those never appear on the LAR and apparently, she feels as though as a home purchase, they should be.



For what it's worth I do agree with this reasoning.




But then why have a temporary financing exception at all? Why don't they just say all loans with a qualifying purpose, except for bridge & construction (they go on when rolled over) should be on the LAR? It still goes back to the point that some construction or bridge loans do not end up with permenant financing either so shouldn't those go on even though they are short-term?

I guess I see their point in regards to flipping, but like I said, the same could happen with a bridge or construction so why stop there??
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/14/05 05:45 PM

Quote:

loans that should be considered home purchase loans and should be part of the data system.




Jim, I know you and I have differed on this issue and we have respected each other in our differences.

My whole contention - even without the above response or the FDIC bulletin - is that temporary financing is exempt.

How are these "splash and dash" loans permanent financing?

If you go by this KC Ruling then basically the only loan that will qualify as temporary financing will be a construction only loan.

IMO, and I stress IMO, including these loans on the LAR constitute the same "unintentional" consequences as reporting a $500,000 commercial loan as a refinancing simply because it is secured by a dwelling.

If they can define a home purchase, home improvement or refinancing loan, then why on earth can't they issue a definition for temporary financing? It's clear that you and I, both seasoned compliance people, have different opinions on what constitutes temporary financing. A regulatory definition would put this difference of opinion aside.

I apologize for the rant.
Posted By: RVFlyboy

Re: Another Temporary Financing Question - 12/14/05 05:47 PM

I agree - we very much need regulatory guidance on what should and should not be considered temporary financing. Especially if we are going to be second-guessed by examiners on what we have come up with absent any definition.
Posted By: sugarbaby

Re: Another Temporary Financing Question - 12/14/05 06:06 PM

All of this makes me wonder if the individuals in our government that review this data actually understand what it is that they are looking for!!! Getting mixed data from one institution to another and from one regulatory agency to another seems like a big waste of time in the whole scheme of things. Just had to rant on this one!!!
Posted By: David Dickinson

Re: Another Temporary Financing Question - 12/14/05 07:43 PM

Quote:

Getting mixed data from one institution to another and from one regulatory agency to another seems like a big waste of time in the whole scheme of things.



EXACTLY!

I can see both sides of the opinions offered by Magic and Dan. What bothers me is that this started as an FDIC opinion. Regulation C (HMDA) is written by the FRB. No one else has the authority to interpret it. I didn't like the Refinancing definition change in 2004, but the FRB said it and we follow it.

Why does one region of one agency get to decide a new interpretation? To make matters worse, the FFIEC agrees with them, but doesn't announce it. Instead, they (almost) hide it in a FAQ update.
Posted By: D2Xs

Re: Another Temporary Financing Question - 12/14/05 08:39 PM

I'm going to ask a stupid question here...What is the downside of reporting all these loans if you are not sure they are to be reported?
Posted By: sugarbaby

Re: Another Temporary Financing Question - 12/14/05 09:13 PM

To me the downside is an examiner making the determination that I have an incorrect HMDA LAR, making me refile, and basically making me look bad to my boss.
Posted By: David Dickinson

Re: Another Temporary Financing Question - 12/14/05 09:19 PM

Sugarbaby is correct. Over reporting is not allowable. HMDA must be 100% correct - you can't over kill it. Why: 2 reasons.

#1. Garbage in - garbage out. They want accurate data.
#2. You are asking people for their ethnicity, race and sex. It is wrong to ask applicant's for this info, unless it is required by law. If you overkill HMDA, you are over-asking for GMI.
Posted By: sugarbaby

Re: Another Temporary Financing Question - 12/14/05 09:32 PM

David, you make a good point with regard to GMI. On the loans that we have considered as "temporary" all this time, we don't have the GMI for those loan applications that would require it under the new interpretation (FFIEC HMDA Q&A)!! How do we report what we don't have???
Posted By: D2Xs

Re: Another Temporary Financing Question - 12/14/05 09:44 PM

Are there any examples of CMPs for overreporting?
Posted By: RVFlyboy

Re: Another Temporary Financing Question - 12/14/05 10:18 PM

Probably not anything for overreporting specifically. But as David says, overreporting means over-asking about race and sex information. If you ask those questions and weren't required to, you now have fair lending violations. A pattern or practice of fair lending violations and now you are looking at Department of Justice referrals regarding your bank. Trust me, you don't want to go there.
Posted By: wanted

Re: Another Temporary Financing Question - 12/15/05 03:31 PM

At the beginning of 2004 I wrote a procedue for HMDA and 'Temporary Financing'. We included loans that would be paid with permanent financing or from sale of assest. We also used the source of repayment as a factor. We have been carefully screening the loans and all that fell under the Temporary Financing were not put on the HMDA LAR. We did this in 2004 and this year. Looks like we could now have a problem! We were examined early 2005. Had no prolem with this at this time.
Posted By: campste

Re: Another Temporary Financing Question - 12/20/05 09:13 PM

Has someone determined what the final outcome of this argument relating to temporary finaincing will be? I just read a newsletter from Banker's Consulting dated Dec. 19th that refers to the temporary financing Q&A, but it only relates to what was discussed above without any resolution or clarity other that to say we need to go back and search out databases for these loan and place them on our LAR? Where are we with this situation? If, we do need to add these loans to our LAR, we don't have much time 'til HMDA [censored] starts.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 12/20/05 09:55 PM

As I have said in a couple other posts today I do not intend to change or add anything until instructed to do so by my examiner. As of now there has been no communication from the FDIC's DC office that I am aware of. I am following up with my examiner every couple of weeks to see if she has heard anything and I will continue to do so until instructions are received to either leave things as they are or to change them. However, I have an advantage as I am a small shop and it won't take me long to add these loans if it becomes necessary.

You may want to contact your lead examiner and ask their guidance.
Posted By: jbest

Re: Another Temporary Financing Question - 12/20/05 10:53 PM

I talked to our Examiner yesterday from the Dallas Region and they agree with the KC letter and expect us to go back and add the loans we had excluded as temporary. We won't have that many either.
Posted By: Dani York, CRCM

Re: Another Temporary Financing Question - 12/21/05 02:22 PM

We have already gone through all of our loans and added these to our LAR. It wasn't as big of a project as we expected. Our examiners (Dallas region) told us to collect GMI and note them visual observation. All in all we only added about 40 loans to our LAR.
Posted By: CRAatBOK

Re: Another Temporary Financing Question - 12/21/05 03:54 PM

I took this question to our OCC examiner (KC region). She said she would have to get an opinion from Washington. Still waiting for an answer.

I don't get the arguement that if it is a "splash and Dash" it won't ever get reported. I thought the whole ideas was to "improve" the property and sell it. If you sell it, somebody buys it and more than likely it will be financed. Maybe your bank won't be doing the financing, but someone will and they can report it. As said above, there are no guarantees that if you make a construction loan that you will be doing the end financing on that. I don't see the difference.
Posted By: Bullseye

Re: Another Temporary Financing Question - 12/21/05 10:43 PM

Quote:

I don't see the difference.




Well said, IMO!
Posted By: David Dickinson

Re: Another Temporary Financing Question - 12/22/05 04:01 AM

Quote:

Has someone determined what the final outcome of this argument relating to temporary finaincing will be? I just read a newsletter from Banker's Consulting dated Dec. 19th that refers to the temporary financing Q&A, but it only relates to what was discussed above without any resolution or clarity other that to say we need to go back and search out databases for these loan and place them on our LAR? Where are we with this situation? If, we do need to add these loans to our LAR, we don't have much time 'til HMDA [censored] starts.



We agree that you don't have much time to get these added to your 2005 LAR. That's why we issued the mid-month guidance (to add them to your LAR). You say the newsletter doesn't provided any resolution or clarity. If the FFIEC said you have to do it, who can trump their opinion? We have contacted several examiners, from several different agencies on this issue. They were all suprised, but basically all said "if the FFIEC said it, you have to do it."

The newsletter also advised you to contact your local examines and discuss this with them. We are hopeful some may advise you to begin this new practice in 2006 rather than go back, but we can't tell you that this is OK.

If anyone doesn't recieve our e-newsletter, you can see it here. You can also sign up for the newsletter at the same website. It's free, but remember, you get what you pay for.
Posted By: Laketime

Re: Another Temporary Financing Question - 12/23/05 07:24 PM

The longer this thread goes the more confused I become (ha, ha).

I am now staring at a loan application that states a purpose of : "$500,000 for refinance and major remodel".

The loan was made for 9-months with interest-only payments. It was written for 9-months to correspond with the remodel time-frame. There is no indication of any permanent financing at this point. It is the borrowers' primary dwelling.

Should this loan be included on the 2005 HMDA-LAR as a home improvement loan?
Posted By: Dani York, CRCM

Re: Another Temporary Financing Question - 12/23/05 07:36 PM

I would say yes. Why do you think this could be temporary?
Posted By: #12

Re: Another Temporary Financing Question - 12/23/05 07:40 PM

I agree with Dani.
Posted By: David Dickinson

Re: Another Temporary Financing Question - 12/23/05 08:20 PM

Quote:

There is no indication of any permanent financing at this point.



Where is the payoff coming from? I can't say that this is to be reported without the answer to this question. Ask the underwriter. Also teach them that this is necessary to document for HMDA purposes.
Posted By: Reed

Re: Another Temporary Financing Question - 12/23/05 09:05 PM

Ok, I thought I was finally getting a handle on the whole temporary financing issue, but now I'm confused again.

Assuming the "new guidance" sticks, wouldn't the fact that the loan will not be replaced by permanent financing automatically make it temporary financing? (please see posts 477743 and 477765 on page 2)
Posted By: Dani York, CRCM

Re: Another Temporary Financing Question - 12/23/05 09:21 PM

Correct me if I am wrong, but the way I read the FFIEC FAQ, it seems to me that even though they still say bridge loans and construction loans are examples of temp financing, the rest of the FAQ seems to eliminate anything but those two things. If the repayment of the loan mentioned a couple of posts ago was sale of house, it would be reportable. Same way if repayment was income or Christmas bonus. Only a repayment of perm financing would make this temp financing. (In my orginal post I wasn't even thinking about method of repayment. Sorry! )
Posted By: Reed

Re: Another Temporary Financing Question - 12/23/05 09:27 PM

Quote:

Only a repayment of perm financing would make this temp financing.




thats what I thought too
Posted By: Laketime

Re: Another Temporary Financing Question - 12/23/05 10:11 PM

Quote:

Quote:

There is no indication of any permanent financing at this point.



Where is the payoff coming from? I can't say that this is to be reported without the answer to this question. Ask the underwriter. Also teach them that this is necessary to document for HMDA purposes.




The underwriter stated the borrowers said they will be "shopping for permanent financing in early 2006 as the loan gets closer to maturity" (which is May, 2006).

And as to the reason I thought this might be temporary financing was some information/phrases contained in CHIRO-07-2002.
Posted By: Dani York, CRCM

Re: Another Temporary Financing Question - 12/23/05 10:43 PM

I can see where you are coming from in regards to the info in CHIRO-07-2002; however, I would argue that the new FAQ seemingly contradicts some of what is in that document (see post 486009 above). And based on the new info you have provided from your underwriter, I would say that if the file was documented that the repayment was going to come from perm financing secured by the borrower at a later date, then you could classify the loan as temporary. But I stress that the file would need to be well documented to that fact.
Posted By: Princess Romeo

Re: Another Temporary Financing Question - 01/02/06 09:45 AM

Here's another twist....are the interest payments coming from an interest reserve built into the loan? If so, then you can strengthen your argument for temporary financing.

Watch out - however, for potential HOEPA issues with interest reserve if the loan is not an RMT. Interest reserve can push the APR into the stratosphere, and you run smack into HOEPA prohibitions on balloon payments for loans with less than a 5 year term.

I ran into this little unintended consequence when dealing with loans made to wealthy borrowers who bought into a neighborhood and later decided to do a 3 wall tear-down to turn their modest 4 bedroom 2 bath home (with a view!) into a 5000 sq foot McMansion.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 01/09/06 03:10 PM

Email sent 1/5/06

I need to get started on my HMDA scrub to get the 2005 data ready for reporting. Do I need to go back and try to identify those loans we considered temporary financing under the SCANS bulletin and add them to the LAR per the KC ruling?

Reply received 1/9/06.

Without an official Chicago Region or Washington office memorandum, I can’t say which way to go. However, I think you can support whichever position you take if this should come up at your next examination. I’m sorry nothing was decided (or conveyed to examiners if it was) at this time. As soon as I hear anything, I’ll let you know.

I will be saving all my correspondence concerning this issue and I will not go back and identify these loans for 2005. However we will "tag" these loans (for 2006) so that if a final ruling does come down we can readily identify them and add them to the 2006 LAR if necessary.
Posted By: bgehres

Re: Another Temporary Financing Question - 01/09/06 03:57 PM

I called the Fed office in Cleveland and asked them their interpretation on the rehab and flip issue. Her reply was since they were improving the property it is reportable because its it's a home improvement and there is no temporary financing exemption on home improvement (I cannot find where temporary financing is only limited to purchases in the reg or Getting it Right). I then asked since you would record these as purchases and not H/I (purchase trumps H/I) then wouldn't this be irrelevant? She didn't know. I then asked whether we should include them on the LAR for 2005. "Yes, because they're home improvement loans."

I'm more confused now than I was before!
Posted By: GreatBlue

Re: Another Temporary Financing Question - 01/09/06 05:22 PM

Sounds to me like your contact at the Fed is also confused. I don't see any basis in the regulation to conclude that there is no temporary financing exemption on home improvement. I also don't see any basis to consider these home improvement loans - they are purchases.
Posted By: bgehres

Re: Another Temporary Financing Question - 01/09/06 06:47 PM

Quote:

I don't see any basis in the regulation to conclude that there is no temporary financing exemption on home improvement. I also don't see any basis to consider these home improvement loans - they are purchases.




I agree 100%.
Posted By: CRAatBOK

Re: Another Temporary Financing Question - 01/09/06 07:41 PM

I finally received an answer from the KC OCC office, and wish I hadn't. The examiner said that Washington said we now have an interpretation from the Fed that defines "spash and dash" loans as not being temporary and that they need to be reported.

I now have to go back for all of 2005 and find these loans and add them to HMDA. It is moments like this that really make me question why I like this job. Why can't they just start using the ruling in 2006? Grrrrrrr. I feel a headache coming on.
Posted By: Reed

Re: Another Temporary Financing Question - 01/09/06 08:29 PM

So where is this interpretation from the Fed that they referenced? Has anyone actually seen it? Or were they talking about the FFIEC Q&A?
Posted By: Jack Holzknecht

Re: Another Temporary Financing Question - 01/09/06 10:47 PM

I believe they are referencing the Q & A.

This issue is to important to deal with only in a Q & A. This should involve a revision to Regulation C or at least an addition to the Official Staff Commentary to Regulation C.
Posted By: bgehres

Re: Another Temporary Financing Question - 01/11/06 04:42 PM

Quote:

So where is this interpretation from the Fed that they referenced? Has anyone actually seen it? Or were they talking about the FFIEC Q&A?




I just received an email back from the Fed. They are indeed using the FFIEC interpretation and we are to follow that.
Posted By: Deena

Re: Another Temporary Financing Question - 01/11/06 09:52 PM

Quote:

Quote:

So where is this interpretation from the Fed that they referenced? Has anyone actually seen it? Or were they talking about the FFIEC Q&A?




I just received an email back from the Fed. They are indeed using the FFIEC interpretation and we are to follow that.




That's the way our contact at the Fed is leaning, too - although he agreed to research it a bit more and get back to me.
Posted By: AEA

Re: Another Temporary Financing Question - 01/27/06 10:42 PM

Might I offer a suggestion: Since the FRB are the owners of the HMDA regulation, pose your question in a letter detailing all of your issues (which are many) and send it to the FRB Board in Washington, D. C.

The last time there was this much chatter about a subject, we all had the CRA regulation changed, for good or for ill, depending on how you view CRA.

Also, how many loans could you possibly have that it would make a big difference in the accuracy of your data? In my experience, most banks do not have a significant number of temporary financing loans, no matter what definition you use.

This will only be solved when you get a "letter" (not a Q&A posted on some website) from the FRB Board in Washington, D. C. All the agencies defer to the FRB on their regulations. They are the only ones who should be issuing interpretations.
Posted By: Dan Persfull

Re: Another Temporary Financing Question - 01/27/06 11:20 PM

If you model your letter after the one I posted at the beginning of this thread you might want to leave out the following sentence:

Please forgive me for the following statement, but what were these people on when they made this determination?
Posted By: Jaeger Schnitzel

Re: Another Temporary Financing Question - 01/27/06 11:42 PM

Quote:

what were these people on when they made this determination?




And if they wanted us to go along peacably, why didn't they share??

I just got wind from our risk management department that we too are caving in and changing our procedures to define temporary financing as 1)less than 2 year term AND 2) non self amortizing AND 3)primary repayment on the loan facility is other financing.

We're NOT going to scrub '05 though. Can't wait to train my loan officers !
Posted By: David Dickinson

Re: Another Temporary Financing Question - 01/29/06 12:13 AM

Quote:

Might I offer a suggestion: Since the FRB are the owners of the HMDA regulation, pose your question in a letter detailing all of your issues (which are many) and send it to the FRB Board in Washington, D. C.

This will only be solved when you get a "letter" (not a Q&A posted on some website) from the FRB Board in Washington, D. C. All the agencies defer to the FRB on their regulations. They are the only ones who should be issuing interpretations.



I see that you are a new poster. Let me provide a little background. When this first came out (June of 2005), I contacted Jane Gell, an attorney on the Federal Reserve Board. Ms. Gell is highly involved in compliance - HMDA specifically.

Ms. Gell indicated to me personally that she did not agree with the FDIC's interpretation and that she would see to a stop to this. Later she contacted me and let me know that this issue was "political".

In December, the FFIEC posted a new FAQ concerning temporary financing. The FFIEC oversees the FRB (if they put this answer on their website, they trump everybody). That day I contacted examiners at the Chicago and St. Louis FRB who I consider to be very knowledgeable of HMDA. Both were not even aware of the new FFIEC FAQ and were dumbfounded. They both indicated they had never seen anything like this before: 1) where the FFIEC trumps the FRB and 2) where the FFIEC issues a FAQ without first advising the FRB.

I agree that the FRB issues and interprets Reg C. Something is very wrong with this whole issue.
Posted By: Princess Romeo

Re: Another Temporary Financing Question - 01/29/06 11:51 PM

What I still can't get over is the answer posted in another thread that "construction" loans that are made with the repayment based on the sale of the property are permanent loans to the builder and therefore reportable.

That seems to fly in the face of the actual regulation that says construction only loans are NOT reportable.

Section 203.4 Compilation of loan data.

(d) Excluded data. A financial institution
shall not report:

(3) Temporary financing (such as bridge or construction loans);


The statement was apparently so obvious on its face that it is not even addressed in the Commentary. I mean, what part of "No" is not being understood?

But then again, as stated in a different thread, the "meaning" hasn't changed, only the "interpretation."

How Fruitbatty is that?