HMDA Temporary Financing Cave In

FWIW, it looks like I will have to succumb to the new FFIEC ruling lacking any official guiadance from the FDIC's Washington, DC or Chicago Regional Offices.

You may or may not want to adopt the following, however this will be our stance on temporary financing for now. I apologize for the length.

January 11, 2006
To: Loan Officers and Loan Support Personnel
From: Dan Persfull
RE: Temporary Financing and HMDA Reporting

From the Frequently Asked Question posted by the FFIEC for HMDA related issues.

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).
The above FAQ was posted on November 21, 2005 in response to an interpretive letter released by the Kansas City FDIC Regional Office. This “new” interpretation of temporary financing is in conflict with a bulletin issued by the Chicago FDIC Regional Office in 2002 and it has caused quite a controversy in the Compliance world.

I have been in direct contact with our FDIC examiners since its release voicing my opposition to the interpretation. For what it is worth our Indianapolis examiners agree with me. However, to date there has been no official statement from the FDIC’s Washington, DC or Chicago Regional offices that I am aware of. Through my compliance contacts it appears the OCC, other FDIC Regional Offices and other regulatory authorities are upholding this new interpretation.

Although I do not agree with this interpretation, due to the lack of an official interpretation from the FDIC’s Washington, DC or Chicago Regional Office we will have to abide by this interpretation since it has been posted by the FFIEC.

Effective for all loan applications received on or after January 1, 2006 temporary financing will no longer be what we have considered it to be in the past.

The following guidelines (beginning on page two) will need to be followed. If you have any questions at all concerning these guidelines please call me.

Temporary Financing Guidelines – Revised January 11, 2006

Definitions (as defined for use by The Peoples State Bank)

Bridge Loan (also called Swing Loan) – A loan to a borrower where funds are to purchase, or construct a new dwelling secured by the equity in an existing dwelling owned by the borrower. This type loan may also be secured by the dwelling being purchased or constructed.

Construction Loan – a loan made for the purpose of the initial construction of a dwelling.

Dwelling - Dwelling means any residential structure, whether or not attached to real property. It includes vacation or second homes and rental properties; multifamily as well as one-to-four-family structures; individual condominium and cooperative units; and manufactured and mobile homes. It excludes recreational vehicles such as boats and campers, and transitory residences such as hotels, hospitals, and college dormitories.

Home Purchase Loan - A home purchase loan is any loan secured by and made for the purpose of purchasing a dwelling. See the definition of “dwelling.”

Home Improvement Loan - A home improvement loan is:
(a) any dwelling-secured loan to be used, at least in part, for repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located, and
(b) any non-dwelling-secured loan (i) that is to be used, at least in part, for one or more of those purposes and (ii) that is classified as a home improvement loan by the institution.

Refinancing - A refinancing is any dwelling-secured loan that replaces and satisfies another dwelling-secured loan to the same borrower. The purpose of the loan being refinanced is not relevant to determining whether the new loan is a refinancing for HMDA purposes. Nor is the borrower’s intended use of any additional cash borrowed relevant to deter-mining whether the loan is a refinancing, though the borrower’s intended use of the funds could make the transaction a home improvement loan or a home purchase loan. See the definitions of “home purchase loan” and “home improvement loan.”

Special Notes:

Home purchase and refinancing – the dwelling securing the loan does not have to be the dwelling being purchased or refinanced.

Home improvement – beginning January 1, 2004 The Peoples State Bank ceased classifying non-dwelling secured loans as home improvement loans. This policy will continue. Only dwelling secured loans for the purposes of home improvement will be reported as a home improvement loan. The dwelling securing the loan does not have to be the dwelling being improved.

Loans qualifying as temporary financing:

1. Loans meeting the definition of a bridge or construction loan.
2. Loans made where the source of repayment will be other long term financing arrangements by PSB or another lender. If the long term financing arrangement is from another lender there must be a take out commitment from the lender in the file.

All other loans that meet the definition of a home purchase, home improvement or refinancing are now reportable for HMDA purposes. The purchase/renovation of a dwelling where the loan is to be repaid by the sale of the dwelling (or another asset) is no longer eligible for the temporary financing exemption.

Also remember that HMDA applies to all applicable loan requests (applications) whether for business or consumer purposes.

Posted By: Sinatra Fan

Re: HMDA Temporary Financing Cave In - 01/19/06 03:47 PM

Quote:

I finally got a response & they told me they are going with the information below they received from HMDA Help:

Therefore, you would treat builder speculative construction loans as
temporary because the loan is never replaced with permanent financing. 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.

So, if a loan is "never" replaced by permanent financing, it is considered to be temporary. And if a loan "has to be" replaced by permanent financing, it is considered to be temporary.

Who's writing this stuff???

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 01/19/06 03:47 PM

Quote:

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.

Quote:

Therefore, you would treat builder speculative construction loans as temporary because the loan is never replaced with permanent financing.

Do these people even know what they are talking about? In one breath they say temporary financing is financing intended to be replaced by permanent financing and in the next they say a speculative construction loan is temporary because the loan is never replaced by permanent financing!!

How much more confusing can they make it?

Posted By: Bullseye

Re: HMDA Temporary Financing Cave In - 01/19/06 04:02 PM

I am glad you read this & had the same confusion I did!! We feel that there has to be some kind of typo or something & that they meant to say both types go on. We are going with this:

Quote:

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 also (my addition) temporary.

I don't know if this is right & couldn't get a clear answer from them. Again, they stressed that it was up to the institution to decide on a case-by-case basis. Leaves the door wide open, doesn't it???

Posted By: corkygirl

Re: HMDA Temporary Financing Cave In - 01/19/06 05:16 PM

Therefore, you would treat builder speculative construction loans as temporary because the loan is never replaced with permanent financing.

A thought on the builder speculative construction financing - the builder would be unlikely to obtain the permanent financing for the home he/she built, the buyer of that home would obtain the permanent financing. This may be the thought process of the HMDA help staff.

Posted By: GreatBlue

Re: HMDA Temporary Financing Cave In - 01/19/06 05:24 PM

Quote:

A thought on the builder speculative construction financing - the builder would be unlikely to obtain the permanent financing for the home he/she built, the buyer of that home would obtain the permanent financing. This may be the thought process of the HMDA help staff.

But that's no different from a fix and flip. I think they are trying so hard to make the original FAQ make sense that they are just digging themselves deeper.

Posted By: corkygirl

Re: HMDA Temporary Financing Cave In - 01/19/06 05:51 PM

I have a HMDA headache now!!!!!!!!!!!!!!

Posted By: Bullseye

Re: HMDA Temporary Financing Cave In - 01/19/06 06:04 PM

Quote:

But that's no different from a fix and flip. I think they are trying so hard to make the original FAQ make sense that they are just digging themselves deeper.

The only thing I can think of here is that a fix & flip is still a home purchase, which I guess was sort of the original intent of HMDA. A construction loan is a purchase of bare ground only & then construction. The permenant financing would be the purchase for HMDA.

I feel the need to rationalize their thinking somehow or I am going to be in for one long, ugly exam!!

Posted By: bgehres

Re: HMDA Temporary Financing Cave In - 01/19/06 07:36 PM

Quote:

A thought on the builder speculative construction financing - the builder would be unlikely to obtain the permanent financing for the home he/she built, the buyer of that home would obtain the permanent financing. This may be the thought process of the HMDA help staff.

This was the arguement I presented to our examiners, they still argued that the construction only loan was still permanent financing for the builder, and yes they did admit that the house/loan would be "double counted".

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 01/19/06 10:27 PM

Quote:

Quote:

A thought on the builder speculative construction financing - the builder would be unlikely to obtain the permanent financing for the home he/she built, the buyer of that home would obtain the permanent financing. This may be the thought process of the HMDA help staff.

This was the arguement I presented to our examiners, they still argued that the construction only loan was still permanent financing for the builder, and yes they did admit that the house/loan would be "double counted".

But wait - if "construction only" loans are to be reported because the examiners says the are permanent financing for the builder, then can your examiners explain why the regulation specifically lists "construction loans" as an example of temporary financing which is NOT reportable?

Anyone want to revisit the suggested definition I started a few posts above?

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 01/19/06 10:30 PM

Quote:

Okay - BOLers - since the Regulatory agencies seem either unwilling or unable to define "Temporary" financing, why don't WE do it and submit it to the agencies?

How about we start with:

1. Temporary financing includes any loan for the initial construction of a dwelling.

2. Temporary financing is any loan, regardless of purpose, that is secured by a dwelling but where the loan is made on the premise that the repayment will NOT come from the ordinary income or revenue of the borrower, but will come from either the sale of the property or from financing that will be repaid by ordinary income or revenue of the borrower.

Post your comments, additions, revisions, etc, and let's COME UP WITH a solid definition for "Temporary" financing and see if we can get the regulatory agencies to consider it.

Bumping this up - anyone want to comment?

Posted By: Sinatra Fan

Re: HMDA Temporary Financing Cave In - 01/20/06 02:09 PM

Bonnie, those definitions look good to me. They are both logical and comprehensible.

You'll never make it as a bureaucrat.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 01/20/06 08:42 PM

I'm back from vacation and rehabilitation from my ATV accident [you'll have to read the "I'm on Vacation" thread in the Private Cooler] and look at what I missed!?!?

We have had several discussions with regulators and several emails exchanged with HMDA Help(less). I'm not going to share them as it will only add to the confusion that is already posted here.

What we all need to do is contact our trade associations (American Bankers Assoc., Independent Community Bankers Assoc., etc.) and DEMAND a regulatory clarification. I would also contact your state associations. Give them a link to this BOL post so they can see the confusion. These associations have more power collectively than we do individually.

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 01/20/06 09:30 PM

Quote:

Bonnie, those definitions look good to me. They are both logical and comprehensible.

You'll never make it as a bureaucrat.

Oh rats! There goes my fall-back for a retirement plan.

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 01/20/06 09:43 PM

Okay - I'll make the first comment/correction on "my" Temporary financing definition:

1. Temporary financing includes any loan for the initial construction of a dwelling provided that loan does not also include permanent financing.

2. Temporary financing is any loan, regardless of purpose, that is secured by a dwelling but where the loan is made on the premise that repayment of any of the principal loan balance will NOT come from the ordinary income or revenue of the borrower, but will come from either the sale of the property or from financing that will be repaid by ordinary income or revenue of the borrower.

3. Loans to finance the intial construction of more than a single 1-4 family dwelling are not reportable regardless of any principal reduction schedule.

This amendment is intended to clarify:

- Construction-perm loans ARE reportable.

- Interest-only payments would not disqualify a loan from being considered temporary

-Loans that have principal reductions during the term of the loan would no longer qualify as "temporary" (with the exception of loans described in item #3) so you don't have someone trying to pass off a 2 year loan with principal and interest payments as "temporary" because the borrower is still looking to sell the property.

-Make it clear that tract construction loans are not HMDA reportable even if there are principal reductions.

Any more thoughts?

Posted By: bgehres

Re: HMDA Temporary Financing Cave In - 01/21/06 01:32 PM

I was told by our regulator that any loan made where the primary source of repayment is the sale of the property can not be considered temporary financing, including construction loans.

I don't agree with them, but that doesn't really matter.

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 01/21/06 05:34 PM

Quote:

I was told by our regulator that any loan made where the primary source of repayment is the sale of the property can not be considered temporary financing, including construction loans.

I don't agree with them, but that doesn't really matter.

This is why David made the point that he did. Banks are not in a position to argue with their regulator when it seems their regulator has taken leave of their senses, so we need to get the various organizations involved to bring this to a head and get a uniform consensus and definition that does not leave room for such "imaginative" interpretation.

I have to wonder HOW someone can READ the HMDA regulation where it says point blank:

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);

So how can you look at that and then say "You must report Construction loans?"

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 01/23/06 06:35 PM

Quote:

Okay - I'll make the first comment/correction on "my" Temporary financing definition:

1. Temporary financing includes any loan for the initial construction of a dwelling provided that loan does not also include permanent financing.

2. Temporary financing is any loan, regardless of purpose, that is secured by a dwelling but where the loan is made on the premise that repayment of any of the principal loan balance will NOT come from the ordinary income or revenue of the borrower, but will come from either the sale of the property or from financing that will be repaid by ordinary income or revenue of the borrower.

3. Loans to finance the intial construction of more than a single 1-4 family dwelling are not reportable regardless of any principal reduction schedule.

This amendment is intended to clarify:

- Construction-perm loans ARE reportable.

- Interest-only payments would not disqualify a loan from being considered temporary

-Loans that have principal reductions during the term of the loan would no longer qualify as "temporary" (with the exception of loans described in item #3) so you don't have someone trying to pass off a 2 year loan with principal and interest payments as "temporary" because the borrower is still looking to sell the property.

-Make it clear that tract construction loans are not HMDA reportable even if there are principal reductions.

Any more thoughts?

I think you will need to come up with some clarification on "ordinary income". Can't have any gray areas.

Posted By: RR Joker

Re: HMDA Temporary Financing Cave In - 02/01/06 07:22 PM

Just quickly, I spoke with our FED examiner a few minutes ago after Becca pointed me to this uproar...he said contruction and bridge loans were fine...but where we used to consider purchasing a home on a single-pay note, source of repayment resale...no longer would qualify. He said we will not be required to redo for 2005...and he recommended flagging our temps beginning 1-1-06 in case all the uproar causes a restatement of the answer and we end up needing to delete them. I did not request this in writing tho..sorry...Just thought you might want to hear something from an authority actually at the FED.

Posted By: bgehres

Re: HMDA Temporary Financing Cave In - 02/03/06 05:25 PM

So according to your contact at the FED, is a loan used to construct a dwelling for resale fall under the "temporary financing" exemption?

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 02/06/06 06:10 PM

Boy your examiners are nicer than mine. I had to go back and hunt all mine for 2005 and add them. I couldn't get anything in writing either, and I asked.

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 02/10/06 04:46 PM

I spoke with my contact from the FDIC Chicago Regional Office yesterday. It looks like we will have to follow the FAQ posted on the FFIEC site.

He did say they are working on a new SCANS bulletin that will address the issue and they are also going to try to address a few of the questions that have been posted here. As soon as it is released (which will be a few weeks probably) I will share its content.

Posted By: rlcarey

Re: HMDA Temporary Financing Cave In - 02/10/06 04:52 PM

Great - just what we need is more regional interpretations.

Posted By: SMQ, CRCM

Re: HMDA Temporary Financing Cave In - 02/10/06 04:53 PM

I do not have to go back through the 2005 loans either - OCC.

Flagging in 2006 is a good idea though.

Posted By: RR Joker

Re: HMDA Temporary Financing Cave In - 02/10/06 08:29 PM

Quote:

So according to your contact at the FED, is a loan used to construct a dwelling for resale fall under the "temporary financing" exemption?

Yes.

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 02/10/06 08:47 PM

Quote:

I do not have to go back through the 2005 loans either - OCC. Flagging in 2006 is a good idea though.

Grrrr. Oh well, I will consider my experience as character building.

At least now I will recognize some of the regular names that come up for 2006.

Posted By: Tesla

Re: HMDA Temporary Financing Cave In - 02/14/06 05:43 PM

Quote:

Quote:

So according to your contact at the FED, is a loan used to construct a dwelling for resale fall under the "temporary financing" exemption?

Yes.

Wouldn't this be 'no"?

Posted By: RR Joker

Re: HMDA Temporary Financing Cave In - 02/14/06 06:47 PM

Quote:

Quote:

Quote:

So according to your contact at the FED, is a loan used to construct a dwelling for resale fall under the "temporary financing" exemption?

Yes.

Wouldn't this be 'no"?

No..it would be "yes"..temporary financing exemption:construction loans.

I have a huge feeling this "hurried" Q&A answer will be revisted...it's causing way too much conflict and will go nowhere towards uniform reporting.

Posted By: Tesla

Re: HMDA Temporary Financing Cave In - 02/14/06 07:19 PM

Quote:

Quote:

Quote:

Quote:

So according to your contact at the FED, is a loan used to construct a dwelling for resale fall under the "temporary financing" exemption?

Yes.

Wouldn't this be 'no"?

No..it would be "yes"..temporary financing exemption:construction loans.

I have a huge feeling this "hurried" Q&A answer will be revisted...it's causing way too much conflict and will go nowhere towards uniform reporting.

I agree, because I am completely confused now. In the example given, the source of repayment is the proceeds from the sale of the newly constructed house not permanent financing, right? I thought if the source of repayment for a loan was anything other than permanent financing - you had to report it. Isn't that what all the confusion is about?

Posted By: Dani York, CRCM

Re: HMDA Temporary Financing Cave In - 02/14/06 07:34 PM

I don't believe the initial construction loan would. I say this because construction loans are specifically mentioned as temporary financing in the Q&A.

Posted By: Reed

Re: HMDA Temporary Financing Cave In - 02/14/06 07:53 PM

What got this whole thread going was that I asked that question and got an entirely different response. Unless someone is holding out on us, I don't believe that anyone has gotten a real definitive answer from someone that counts on this yet.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 02/14/06 08:11 PM

Quote:

So according to your contact at the FED, is a loan used to construct a dwelling for resale fall under the "temporary financing" exemption?

I agree this is still exempt. This is what I call a "spec. house loan". This is NOT the same as a "splash and dash" or "rehab" loan. Those are purchases and the new FAQ makes it clear they are to be reported because they aren't construction loans. A Spec. House loan is a construction loan and clearly (at least to me

) meets the exemption.

Posted By: Bullseye

Re: HMDA Temporary Financing Cave In - 02/14/06 10:14 PM

FWIW, our regulator (KC FDIC) agrees with David. They said a loan to construct a home & sell it (spec home) is construction & therefore not reportable. A loan to purchase, fix up & sell a dwelling (splash & dash) is reportable.

Posted By: Reed

Re: HMDA Temporary Financing Cave In - 02/15/06 01:38 PM

Sweet! that's the clarification I've been waiting for.

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 02/15/06 01:48 PM

Things that make you go hmmmmmm. . . . . .

Federal Register / Vol. 67, No. 32 / Friday, February 15, 2002 / Rules and Regulations Page 7231

Temporary Financing Regulation C generally does not permit lenders to report temporary financing. The Board has not amended these rules. The Board believes that, although in some cases the data would not be duplicative—such as where a lender originates construction loans but does not offer permanent financing these instances appear to be relatively few. Time Period. The Board requested comment on whether the regulation should define ‘‘temporary loans’’ in terms of a time period. A few financial institutions requested a definition that includes a specific time period. Upon further analysis, however, the Board believes that in the absence of any generally accepted time frame for ‘‘temporary financing,’’ it is impracticable to provide a ‘‘bright-line’’ test. Instead, the regulation will continue to offer examples, such as construction financing.

Posted By: bgehres

Re: HMDA Temporary Financing Cave In - 02/17/06 12:54 PM

Quote:

FWIW, our regulator (KC FDIC) agrees with David. They said a loan to construct a home & sell it (spec home) is construction & therefore not reportable. A loan to purchase, fix up & sell a dwelling (splash & dash) is reportable.

That’s exactly the opposite interpretation that I received from our fed office. I’m glad to see all the regulators are on the same page with this.

Posted By: Sinatra Fan

Re: HMDA Temporary Financing Cave In - 02/17/06 02:21 PM

"I'm from the government, and I'm here to obfuscate."

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 02/17/06 02:26 PM

Quote:

I’m glad to see all the regulators are on the same page with this.

From my conversation with my contact out of Chicago - your regulator's interpretation won't hold water - the only interpretation that will count will be that of the Board. They (you're regulator) can only give you guidance - but the Board has the final say in the interpretation.

Posted By: COMPLIcated

Re: HMDA Temporary Financing Cave In - 02/17/06 03:20 PM

Our FDIC contact in Oklahoma City which covers the Dallas Region said that a construction loan to construct a personal residence, a spec home, or a custom home does fall under the temporary financing exclusion. He also said that we were to report home purchases that are investment properties to be resold (whether improvements were made or not). FWIW - he also said that we were still to exempt bridge loans and we could use whatever our bank defines as a bridge loan.

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 02/17/06 05:27 PM

That guidance pretty well falls within the Board's interpretation.

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 02/17/06 08:38 PM

I get this really strange tic in my left side every time I read this thread. I think I am beginning to suffer permanent brain damage.

Posted By: RR Joker

Re: HMDA Temporary Financing Cave In - 02/17/06 08:49 PM

Quote:

I get this really strange tic in my left side every time I read this thread. I think I am beginning to suffer permanent brain damage.

Posted By: SavannahOne

Re: HMDA Temporary Financing Cave In - 02/17/06 08:54 PM

Our OCC Examiner-In-Charge is relying on Fed Guidance that was provided to Karen Tucker (OCC Compliance Specialist). It clearly says Spec Construction is not automatically exempted. To wit:

"Regarding the spec homes or investment properties -- The intent is not to exclude loans to purchase a home from the HMDA report where the borrower does not intend to live, such as a spec home or investment home. The institution needs to look at all the factors/information in the application or loan and determine whether it is temporary and not simply base the decision on the fact that the home is a spec home, investment home, or the borrower does not intend to live in it."

Given this Fed opinion, I can not see away aroud reporting these(sigh).

Posted By: RR Joker

Re: HMDA Temporary Financing Cave In - 02/17/06 09:29 PM

I can...that is clearly a contradiction of the wording itself..construction loans are exempt.

The verbiage "spec home or investment home" can have different meanings...yes, most builder construction loans are "speculative"..however a "spec" loan could also refer to speculation on investment purchases which would not be exempt.

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 02/17/06 09:36 PM

Now the room is beginning to spinnnnnnn.

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 02/17/06 11:36 PM

Q: When is Temporary financing not temporary financing?

A: When it isn't.

Posted By: rlcarey

Re: HMDA Temporary Financing Cave In - 02/18/06 03:53 PM

FWIW - I agree with Joker, I don't believe the OCC was referring to "spec" in the construction sense. I think is was in reference to a speculative investment loan, such as a "splash and dash".

Posted By: OldSchoolBanker

Re: HMDA Temporary Financing Cave In - 02/21/06 11:25 AM

Okay, given all that has been said, how do you view the following scenario?

Bridge Loan: Client takes out a 1yr term equity loan, against property A to help them buy property B a new home for all cash. No permanent financing on prop B.

The source of repayment for the 1yr term bridge loan is the sale of property A.

My take is it is not reportable. Any feedback?
Thanks!

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 02/21/06 01:14 PM

A "bridge loan" is specifically exempt under the regulation. Although the logic of the new Q&A (no permanent financing would disqualify it) I still think it qualifies for the bridge loan exemption.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 02/22/06 03:38 AM

I agree. Not reported - bridge loan = temporary financing exemption.

Posted By: RR Joker

Re: HMDA Temporary Financing Cave In - 02/22/06 06:34 PM

I also agree.

Posted By: Carolina Blue

Re: HMDA Temporary Financing Cave In - 03/10/06 05:48 PM

I'm trying to make sense of this and try to simplfy it for our loan ofifcers. Don't know if that's possible. Would this statement adhere to their intent of the guidance?

Temporary financing under HMDA is:
* an interest only or single pay loan that is intended to be paid off by the issuance of another loan to the same borrower,
* a construction loan, or
* a bridge loan

Yea or Nay?

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 03/11/06 03:48 AM

I can go along with that Carolina Blue. Can you give me an example of a loan that meets the first criteria that isn't a construction or bridge loan?

Also, you may want to clearly define "construction" and "bridge" loans for your loan officers. Some try to call a home improvement loan a construction loan. I also like to say "you construct a dwelling once, you improve it from then on."

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 03/11/06 10:03 PM

I think part of the confusion over the "Spash and Dash" loans are that, as far as your Call Reporting is concerned, those loans ARE considered construction loans and reported on RC-C Part I Line 1a.

So you have one regulation calling them "construction" loans, and another regulation that says they aren't construction loans.

And yet, the Call Report definitions are what we must follow for defining a CRA Small Business loan!

Seriously - I think we have a Board Game in the making here......

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 03/13/06 07:03 PM

Bonnie, Why would you consider "Splash and Dash" construction? If I do a gut rehab on my house or part of my house, it is home improvement. I would think the same would be true for these. We are lending to someone to do home improvement on a current dwelling. They are not tearing the place down and building something new.

Besides, since we are lending to purchase, the home improvement/construction part doesn't come into play. While I may not agree that they are not temporary financing, the argument that because they are paid from the ordinary income of the borrower (the sale of the house) does make some sense in not classifying them as temporary.

Posted By: BrendaW

Re: HMDA Temporary Financing Cave In - 03/15/06 09:07 PM

I just got off the phone with my OCC examiner....here's the scoop. The Fed Reserve should be putting something out very soon. Hopefully it will help but based on what I was told I doubt it.

Secnario 1: Interim Construction Loan - spec house - borrower is the builder- borrower sells the home at completion. Loan paid off by buyer's mortgage company. Loan is HMDA reportable as the sale of the home is income to the builder therefore it is NOT temporary financing.

Scenario 2: consumer interim construction loan - personal residence - funds used to payoff interim is permanent financing from outside source - temp financing not reportable. If paid from current bank loan then the perm would be HMDA reportable but the interim would be considered temp financing.

What a mess....hopefully we will have something from the Fed Reserve that will put us all on the same page instead of different pages...

Posted By: Bullseye

Re: HMDA Temporary Financing Cave In - 03/15/06 09:21 PM

So, pardon any confusion, they are telling you that spec construction loans ARE reportable? If that is correct, this is going to create a gigantic mess at our institution! And is that what HMDA Data is really supposed to include??

And WHY do they always do this stuff mid-year???

Posted By: Jaeger Schnitzel

Re: HMDA Temporary Financing Cave In - 03/15/06 10:45 PM

I think the problem comes from misunderstanding what “construction” and “bridge” loans are. You see, a common misconception is that a loan where the funds are used to build a house is a construction loan. This is simply not true. You see, intrinsic to the definition of both “construction” and “bridge” is that they will be replaced by permanent financing. That’s why Reg. C uses “construction” and “bridge” loans as examples of temporary financing, because very clearly “These examples indicate that financing is temporary if it is designed to be replaced with financing of a much longer term.”

We silly bankers would be a lot less confused if we stopped clinging to ridiculous definitions that include any loan to construct a building as a construction loan, when this is clearly not the case.

Now if you’ll excuse me, I need to go add a couple of shots of Jaeger Meister to my tea so that I can make it through the afternoon.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 03/16/06 02:12 AM

Jaeger: I don't agree. Reg C is NOT new. It's been around for over 15 years. We've been excluding construction loan (ALL of them) for over 15 years. No where have the regulators ever said that construction had to be followed by permanent financing to be excluded.

What is says is construction and bridge loans are examples of temporary financing. They are excluded. There could be other types of temporary financing if the loan was followed by permanent financing.

Quote:

Scenario 1: Interim Construction Loan - spec house - borrower is the builder- borrower sells the home at completion. Loan paid off by buyer's mortgage company. Loan is HMDA reportable as the sale of the home is income to the builder therefore it is NOT temporary financing.

This is not consistent with anything we have heard in the past. No where does Reg C say a loan is not temporary if it is repaid from ordinary income. I have said that it is a good rule of thumb, but not a requirement. I have talked with numerous examiners on Spec. Homes and (so far) haven't had one say they are covered.

I encourage you to fight this until something official is issued.

Posted By: Princess Romeo

Re: HMDA Temporary Financing Cave In - 03/16/06 04:02 AM

So what does the Fed intend banks to do that finance housing tract financing for builders such as Centex, Griffin, S&S, Benchmark, and so on?

Afterall, those builders rely on the SALE of the homes for their revenue/income - so following this new "logic", tract construction financing is now HMDA reportable. Can you imagine a $56Million Purchase Loan for a 1-4 family dwelling with "N/A" for all of the GMI fields?

And if someone says "Well this doesn't include "Builders", then when do we arrive at the threshold? If the Builder builds more than 5 houses a year? 10 houses? 40 houses?

Posted By: Newbie06

Re: HMDA Temporary Financing Cave In - 03/16/06 02:39 PM

a question in regards to the temporary financing. Does one collect the monitoring information if it's a home purchase loan (investment property) if it is temporary financing?

Posted By: YHWB

Re: HMDA Temporary Financing Cave In - 03/16/06 03:16 PM

So has this thought process been officially issed by the FED, or is this something that is being considered?

Posted By: swiggles

Re: HMDA Temporary Financing Cave In - 03/16/06 03:51 PM

Quote:

a question in regards to the temporary financing. Does one collect the monitoring information if it's a home purchase loan (investment property) if it is temporary financing?

Lis, you may get different opinions on this issue, but here's my take. The regulation states that a financial institution shall collect data on ethnicity, race, sec and income. Then the regulation states that a financianl institution shall not report data for temporary financing. To me, that means collect it but do not report it. The same type of application form is used for temporary financing and permanent financing and if a customer comes in and asks for a real estate application to take home to complete, chances are, you're not going to know the particulars at that time.

Posted By: Jaeger Schnitzel

Re: HMDA Temporary Financing Cave In - 03/16/06 05:04 PM

David,
I was trying to ooze with sarcasim. Maybe that wasn't coming through. I agree that reporting spec construction is totally inconsistant with what what Reg. C says.

The logic of the Q&A is that somehow intrinsic in the definition of construction and bridge financing is that more financing will follow. I have no idea where they are getting this, but that's the only logical way I can find to read the Q&A. It makes no sense with what the reg says, but we've nevertheless changed our policy so that we report any construction or bridge loan that isn't being replaced by long term financing.

Posted By: jaybritt

Re: HMDA Temporary Financing Cave In - 03/16/06 06:22 PM

My word....I can not absorb all this INFORMATION. OK, so what about the customers we have who build a spec house? They will not payoff the loan with long term financing, but rather from sale of the property(hopefully). We're saying this loan is reportable. I say that knowing that the definition of temp financing includes construction loans, but due to the way the loan will be paid off is why we determine it to be HMDA reportable. Right?

Posted By: YHWB

Re: HMDA Temporary Financing Cave In - 03/16/06 07:25 PM

I agree. I think we need some expert clarification on this spec house issue.

Posted By: jap

Re: HMDA Temporary Financing Cave In - 03/16/06 07:29 PM

I am of the opinion that if any regulator or examiner wants to assert that any construction only loan must be reported, then they should be prepared to re-write the GIR, considering the multiple places it clearly states that a construction only loan is not reportable. What if your bank had two procedures regarding the same subject and the two procedures had contradictory information? To me this is the same situation.

Posted By: bgehres

Re: HMDA Temporary Financing Cave In - 03/17/06 01:07 PM

I'm beginning to think they should just do away with the temporary financing exemption altogether. A little more work for a lot fewer headaches. By reporting the splash and dash loans, IMO we're reporting useless data now anyway, why not make it all a pile of garbage.

Posted By: Carolina Blue

Re: HMDA Temporary Financing Cave In - 03/17/06 02:17 PM

The stance I'm taking is...
A splash and dash loan is financing for a borrower to purchase a home, fix it up (splashes paint on it), and then will payoff the loan with the sale of the property (dashes). This loan is HMDA reportable (and may or may not be subject to RESPA).

A spec house loan is financing for a borrower to construct a home, and then pay it off with the sale of the house. This loan is a construction loan and not HMDA reportable (and not subject to RESPA unless the purchase of the lot is included, or the term is more than 2 years).

I talked to one FDIC guy and got the okay (of course not in writing

)

Posted By: jaybritt

Re: HMDA Temporary Financing Cave In - 03/17/06 04:38 PM

My brain has hemorrhaged.....what do you think about the following?
1) individual's construction loan - will be replaced with perm (15,20,30 year mortgage) - Not HMDA applicable
2) construction loan contractor (spec) - will pay off with sale of collateral or some other means of income (anything other than perm financing) - HMDA applicable
3) contractor or individual build house to sell (spec)...house doesn't sell, has to be placed on payments with us. Term isn't 15-20-30, but more like 3 or 5 year with a balloon. Still consider this temporary financing - HMDA reportable.

The reason I say this is: the Q&A answers the one about splash and dash, the words "much longer" term does not tell me what I need to know, so I err on the side of obvious (15-20-30 year)and hope that works.. You know this will change about November of this year and what ever we have done will not be right and we'll have to start over!!!!!

Help me out guys...opinions please

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 03/17/06 04:45 PM

IMO 1 & 2 still falls within the construction loan exemption.

#3 would be reportable as a home purchase. Balloon loans are not temporary financing.

Keep in mind the Q&A is referencing a "splash & dash" loan. These loans are not the same as a construction loan.

Posted By: jaybritt

Re: HMDA Temporary Financing Cave In - 03/17/06 05:44 PM

on # 2 - the spec that will pay off with something other than perm financing....anything thing we do with that loan will still only be a fix until the customer can get the house sold.....the loan was never meant to be permanent and the contractor never has intentions of keeping it in his name with a long term mortgage...please explain. I agree under the old definition, but how do you discount the new one in the Q & As?

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 03/17/06 06:02 PM

The splash and dash loan is to purchase an existing dwelling, renovate it and sell it. That is not a construction loan. Building a spec home is a construction loan, and construction loans are specifically exempt.

Posted By: Jaeger Schnitzel

Re: HMDA Temporary Financing Cave In - 03/17/06 07:05 PM

But the Q&A says that Construction loans are loans that are designed to be replaced by permanent financing of a much longer term. They've changed the definition. I don't like it one bit, but I don't see how you can avoid reporting spec construction with the way the Q&A is worded.

Posted By: jaybritt

Re: HMDA Temporary Financing Cave In - 03/17/06 08:29 PM

I agree, the change in wording now takes away that neat little "time" matter and makes you think about the way a loan is handled when it matures

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 03/17/06 08:41 PM

The examples indicate that financing is temporary if.........

The Q&A has not changed the definition of a construction loan. As long as the construction loan is for the initial construction of the dwelling, I will rely on the construction exemption until there is written regulatory clarification to do otherwise.

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 03/17/06 10:14 PM

Why did I read all this. Now I have a major headache on Friday and it is almost 5.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 03/17/06 10:30 PM

Quote:

So what does the Fed intend banks to do that finance housing tract financing for builders such as Centex, Griffin, S&S, Benchmark, and so on?

Good question. They didn't collect on these loans in the past. That doesn't make it wrong today. The FRB drew a line in the sand that said "we don't want temporary loans." That excluded Spec homes.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 03/17/06 10:33 PM

Quote:

David,
I was trying to ooze with sarcasim. Maybe that wasn't coming through. I agree that reporting spec construction is totally inconsistant with what what Reg. C says.

I didn't pick up on this. Sorry. Probably because this whole topic makes me mad.

Quote:

. . . but we've nevertheless changed our policy so that we report any construction or bridge loan that isn't being replaced by long term financing.

I think this is incorrect. Over reporting is not OK. I believe this will be a violation at your next exam. Maybe you have discussed this with your local examiners. If not, I encourage you to do so.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 03/17/06 10:36 PM

Quote:

The stance I'm taking is...
A splash and dash loan is financing for a borrower to purchase a home, fix it up (splashes paint on it), and then will payoff the loan with the sale of the property (dashes). This loan is HMDA reportable (and may or may not be subject to RESPA).

A spec house loan is financing for a borrower to construct a home, and then pay it off with the sale of the house. This loan is a construction loan and not HMDA reportable (and not subject to RESPA unless the purchase of the lot is included, or the term is more than 2 years).

Perfect! That's exactly right. I haven't heard from any examiners that say anything different than this. The Splash and Dash memo (fiasco) didn't say to change this either.

If you all read Dan's and post and mine, you'll see that we are consistent are this. Spec Houses (construction) are NOT reported.

Posted By: David Dickinson

Re: HMDA Temporary Financing Cave In - 03/17/06 10:45 PM

I'm going to address these two posts with one:

Quote:

on # 2 - the spec that will pay off with something other than perm financing....anything thing we do with that loan will still only be a fix until the customer can get the house sold.....the loan was never meant to be permanent and the contractor never has intentions of keeping it in his name with a long term mortgage...please explain. I agree under the old definition, but how do you discount the new one in the Q & As?

Quote:

But the Q&A says that Construction loans are loans that are designed to be replaced by permanent financing of a much longer term. They've changed the definition. I don't like it one bit, but I don't see how you can avoid reporting spec construction with the way the Q&A is worded.

You are both taking 1 sentence from the Q&A and placing your entire definition of temporary on it. §203.4(d)(3) says NOT to report "Temporary financing (such as bridge or construction loans)" Construction and bridge loans are ALWAYS exempt. The FAQ doesn't contradict this.

Read the entire Answer (from the FFIEC FAQ):
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).

It says Construction and Bridge loans are Illustrative. IOW, there may be other types of temporary financing. Then the Q&A gives some guidance for other types. This doesn't over ride what you already have exempt (construction/bridge). It gives guidance on OTHER types of temporary loans that may exist.

For instance, if I wanted to borrower money to remodel my kitchen. If you did a multiple advance HI loan that will be replaced at the end of the improvement period (6 months) with a 5 year loan, this first loan would NOT be reported, yet it isn't a "construction" loan.

Posted By: Sound Tactic

Re: HMDA Temporary Financing Cave In - 04/05/06 05:11 PM

Thanks for all the information.

Posted By: TEXAS LJ

Re: HMDA Temporary Financing Cave In - 04/26/06 04:41 PM

I read on the internet that the rehab loans ahould have been included in our 05 submission. Did anyone back up and do this? Did anyone resubmit? I couldn't find on the FFIEC site where it said we must.

Posted By: SavannahOne

Re: HMDA Temporary Financing Cave In - 04/26/06 05:07 PM

By calling it a clarification, they technically required you to back up and do that. Talk to you EIC and see if he/she will agree to not ask about that issue for 2005 on the basis that moving temporary loans to permanent loan status in November was more than a mere clarification of an existing rule.

Posted By: CRAatBOK

Re: HMDA Temporary Financing Cave In - 04/26/06 08:04 PM

I think there has been a variety of answers to this. I was told by our examiner that I had to go back and add them. Others were told they didn't have to. I think you better contact your examiners and ask them.

Posted By: MyScamper

Re: HMDA Temporary Financing Cave In - 05/05/06 10:40 PM

I just finished reading this entire thread (with great interest) and noticed how interpretations by the posters (and your regulators) changed from January to April. This has been a nightmare for us too, because our niche is construction lending (no end financing, EVER).

I'm wondering if any of you listened in on the FDIC's Chicago Region conference call on 4/25/06. The phones at the local FDIC field office were ringing off the hook after that one. Here is some of the guidance we received by 2 Field Examiners out of the Princeton Field office and L. Ray Jackson, the Regional Director, who I'm sure many of you are familiar with:
1) Purchase and rehab loans (splash & dash) are HMDA reportable because the event that came first is the purchase.
2) Developing a tract of land and building homes for resale - NOT HMDA reportable.
3) Conversion of a building from commercial use to residential condos - NOT HMDA reportable.
4) Large addition to a home (even if over 50% SF addition) is a home improvement loan, not construction
5) Tear downs - if 2 separate loans, the loan to purchase the lot is HMDA reportable as a purchase, and the construction loan is NOT HMDA reportable. If it is all one loan, NOT HMDA reportable.

Needless to say, this guidance pretty much was the opposite of previous instructions. When I called our Review Examiner, she said, "Heard you on the call and was expecting to hear from you". I provided her with an email listing numerous questions regarding construction loans, refinancing, when is a dwelling a dwelling (how much has to be completed before it is a dwelling), etc. My last email from her said they were going to Washington with my concerns. We have an examiner coming on-site on Tuesday 5/9/06 to provide HMDA training for our Lenders and Admin. Assts. I will post her remarks/responses after that.

Posted By: swiggles

Re: HMDA Temporary Financing Cave In - 05/08/06 01:48 PM

Quote:

Large addition to a home (even if over 50% SF addition) is a home improvement loan, not construction

If the improvement project is short term to be replaced by permanent financing, it's still temporary financing and not reportable........correct?

Quote:

Tear downs - if 2 separate loans, the loan to purchase the lot is HMDA reportable as a purchase, and the construction loan is NOT HMDA reportable. If it is all one loan, NOT HMDA reportable.

HUH??? I don't know what the definition of a "tear down" is, but how is the purchase of a lot ever reportable?

Posted By: Truffle Royale

Re: HMDA Temporary Financing Cave In - 05/08/06 02:22 PM

A "tear down" is an old delapedated house that is purchased with the intent of tearing it down and building a new house on that lot. So when the lot is purchased there is a dwelling on it. That's what makes it HMDA reportable.

Posted By: MyScamper

Re: HMDA Temporary Financing Cave In - 05/08/06 06:48 PM

Actually, not all "tear downs" are old delapedated houses. Most of ours are pretty nice houses, but the builder wants the lot to build an even bigger and better house.

Posted By: Sage

Re: HMDA Temporary Financing Cave In - 05/08/06 07:18 PM

Ok for HMDA do you call this a home purchase eventhough the customer is only buying it for the lot?

Posted By: RVFlyboy

Re: HMDA Temporary Financing Cave In - 05/08/06 07:32 PM

If I understand correctly, that's what MyScamper's original post was saying. She said that Chicago FDIC is saying that if a single loan is done to finance the acquisition, teardown and reconstruction it would be considered a construction loan and would not be HMDA reportable. On the other hand if one loan was done to finance the acquisition, and another loan was done to finance the tear down and reconstruction, the acquisition loan would be reportable as a home purchase loan. The construction loan would still not be reportable.

Posted By: Sound Tactic

Re: HMDA Temporary Financing Cave In - 05/08/06 07:40 PM

FWIW MB, that is how I see the interpretation also.

Posted By: MyScamper

Re: HMDA Temporary Financing Cave In - 05/08/06 08:08 PM

I just had a phone conversation with the examiner that is doing our on-site training tomorrow. She and the review examiner had a conference call with some Washington FDIC honcho and a rep from the FED. They have backed off some from the statements that were made on the FDIC Chicago Region conference call. She stated that for those transactions that were not clearly reportable or not reportable, they were going to be looking for a reasonable standard based on intent that the bank uses on a consistent bases. For example, if the borrower purchases a lot that happens to have a dwelling on it (which is not considered in the appraisal value)with the INTENT of tearing down the house and building a new one, it is NOT reportable because it is a lot loan. If the bank then gives builder funds to pay off this loan and construct the new building, it is NOT reportable because this is a construction loan. Guess What?!?! This is exactly how we were (not) reporting these loans before!!!!! She strongly emphasized the "reasonable standard" and "intent" criteria and suggested it would not be a bad idea to put our "reasonable standards" in writing so that all loan officers would be on the same page.

Posted By: MyScamper

Re: HMDA Temporary Financing Cave In - 05/09/06 04:39 PM

Loans qualifying as temporary financing:

1. Loans meeting the definition of a bridge or construction loan.
2. Loans made where the source of repayment will be other long term financing arrangements by PSB or another lender. If the long term financing arrangement is from another lender there must be a take out commitment from the lender in the file.

All other loans that meet the definition of a home purchase, home improvement or refinancing are now reportable for HMDA purposes. The purchase/renovation of a dwelling where the loan is to be repaid by the sale of the dwelling (or another asset) is no longer eligible for the temporary financing exemption.

Dan - This was from your very first post back in January and you were absolutely right, based on the guidance we received from our FDIC examiner during our on-site training.

She confirmed that the purchase/rehab/resale loans are HMDA reportable as purchases. If it were purchase/rehab with the "INTENT" of getting permanent financing at the end, it would be temporary financing.

She emphasized "Reasonable Standard" and "Intent". Here is a direct quote from one of the slides: TEMPORARY FINANCING - To determine if loan is reportable or not:Institutions should define temporary financing based on their business practice AND establish consistent criteria to evaluate whether a loan is temporary financing. This is referred to as "Reasonable Standard."

Also, "If the applicant knows or expects the loan to be replaced by permanent financing, then the initial, originated loan is temporary."

Our take away from the training is that we need to develop and implement the reasonable standards (which are bank defined) based on the borrowers intended use of the funds, and ensure that the standards are consistently followed.

If anyone has questions, I will try to answer them based on what we were told today.

Posted By: Dan Persfull

Re: HMDA Temporary Financing Cave In - 05/09/06 04:58 PM

Thanks for the input. It sounds like the FDIC examiners are trying to be reasonable in their approach. And I certainly can buy into the "reasonable standard" guideline.

Posted By: Sound Tactic

Re: HMDA Temporary Financing Cave In - 05/12/06 07:26 PM

I wanted to add this to humor you. I have a lender who is doing a loan to a customer to construct a portion of the customers house. Note: under the definition of construction this is not an actual construction loan. He is going to refinance the 1st and this 2nd loan when complete into one home mortgage. I told him this is temporary financing and not to complete HMDA, because he is replacing the 2nd (and the 1st) with another loan.

Oh please respond. We can talk all day about this one.

Posted By: MyScamper

Re: HMDA Temporary Financing Cave In - 05/16/06 02:15 PM

Funny you should have the exact situation that the FDIC examiner gave in our training session. She obtained a construction loan to build an addition, and at completion got an end loan that paid off the construction loan and 1st mortgage. She said this was temporary financing. So you are correct.

Posted By: Sound Tactic

Re: HMDA Temporary Financing Cave In - 05/16/06 02:53 PM

Thanks for the response. I was basing my decision on the fact that the plan was to replace the construction portion loan.

HMDA Temporary Financing Cave In