The HMDA requirements state that institutions should NOT report loans or lines for temporary financing. While that might seem pretty straightforward, we find there is often a lot of confusion surrounding this exclusion. So, what is temporary financing? The Commentary to §1003.3(c)(3) #1 states a loan or line of credit is considered temporary financing … if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. This could include things like bridge/swing loans or loans for the initial construction of a dwelling. For example, say you make a 12-month loan to construct a dwelling. Once the construction is complete, it will be paid off and replaced with permanent financing (i.e., two-phase financing). In this case, the initial 12-month loan is considered temporary financing and is not HMDA reportable. The permanent loan; however, is HMDA reportable as a Purchase.
The key thing to remember is that the temporary financing designation is driven by having two phases and not simply because a loan/line has a short term. For example, a construction-only loan/line that won’t be replaced with permanent financing IS reportable for HMDA. There is one exception to this rule; however, for builder loans as the Commentary to §1003.3(c)(3) #2 states, a construction-only loan or line of credit is considered temporary financing and excluded… if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale.
David explains more in the video.
Published
2024/02/20
