A few weeks ago I published the slides to a presentation I did on the new HMDA rules. One slide, slide 33, had questions with no answers. They were intended to spark discussion on the rules and illustrate some differences between the old rules and the new ones, in real time, so I didn’t put in any answers on the slides. So I’ve decided to answer them here. Some questions are meant to be a bit vague though, and the answer dependent on information that isn’t in the question, to help illustrate what information is important and what isn’t so important.
#1. A lawyer purchases a 2-family dwelling intending to convert it into his law office.
Not reportable, for two reasons. First, remember the new focus is on what’s securing the loan. Covered loans are only loans secured by a dwelling, but once it’s converted into a law office, the structure securing the loan is no longer a dwelling. Second, business purpose loans are exempt unless they are also home purchase, home improvement, or refinancings. Since the purpose of the loan is not to purchase a home, it’s not reportable. This would not have been reportable under the old rules either, but mostly for the second reason.
#2. A borrower takes out a home equity loan on his primary residence to put a down-payment on a vacation home.
Reportable, as a home purchase. This would have been reportable under the old rules also, but again the reason is different. Under the old rules, it would have been a home purchase because the loan was being used to purchase another dwelling. Under the new rules, it’s a reportable loan because it’s secured by the first dwelling (the purpose is not as relevant). This is again to highlight how the determination of whether a loan is reportable depends on the security interest more than the purpose.
#3: A builder gets a construction loan to purchase a single-family dwelling, demolish it, and construct a new single-family dwelling to be sold upon completion.
This one was meant to be a bit ambiguous. The “to be sold upon completion” part suggests it could be temporary financing and not intended to be permanent, and therefore not reportable. It also depends, under the new HMDA rules, whether or not it’s secured by a dwelling. BUT if the loan is secured by the newly constructed dwelling and intended to be permanent financing, it is reportable. If the loan was a short-term construction only loan that would be replaced by a buyer’s permanent loan after construction, then this loan is not reportable but the buyer’s loan would be. Not really enough information here to be certain either way, but the important thing is to know that the answer depends on how the loan is secured and whether it is permanent or temporary financing.
#4. Lender refinances a loan secured by multifamily apartment complex to finance the construction of a new apartment building.
Reportable, home purchase. Similar to #2, but this shows how the business exemption works. This is a business purpose loan on investment property, so it’s normally not reportable. But there is an exception to the exemption which makes business purpose loans that are secured by dwellings AND used as a home purchase, home improvement, or refinancing reportable. So here you have a business purpose loan that is 1) secured by a multifamily apartment dwelling, and 2) being used to purchase a dwelling, making it a reportable commercial loan. It would also be reported as a home purchase and not a refinance.
#5: A builder gets a construction loan to purchase vacant land and finance the construction of a single-family dwelling to be sold immediately after completion.
Similar to #3, this one doesn’t have enough information. If the loan is secured by the vacant land, then it’s not reportable under the exception to reporting loans secured by unimproved land. If it’s a construction-only loan intended to be replaced by permanent financing, then the construction-only loan is temporary and not reportable. If it’s intended to be permanent financing and secured by the new newly constructed dwelling, then it’s reportable.
#6. A borrower gets a short term loan to purchase a dwelling, improve it, and immediately sell it.
Not reportable. Short term loans, not intended to be permanent (even if it’s extended later), are temporary financing and not reportable.
So there you go. Often times with these things the rules aren’t that complicated, it’s the underlying facts that make things complicated. Hopefully that helps, but if you still have any questions, please don’t hesitate to reach out! I’m always happy to chat with a fellow HMDA fan.
Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA 02184