Permanent Financing have to Follow Construction?

Answered by:

Question:

For HMDA purposes, how is the following loan to be reported? The bank made a construction-only loan with a 12-month maturity. The home was completed as of the maturity date, but the borrower needed time to sell the home. In the interim, the bank makes a loan for 12 more months that we consider temporary financing. At the end of this term, we make another loan to convert the initial construction to permanent financing and report it on our LAR as a home purchase loan. Is this correct? Is there a rule that says the “permanent financing” has to immediately follow the construction loan?

Answer:

Since the first loan was to convert the construction loan to permanent financing (it was not temporary financing since it was to be paid from the sale of the home) it should have been reported then. The second loan would be a refinancing.

First published on BankersOnline.com 8/29/11