Q Under the Home Mortgage Disclosure Act (HMDA), how does a bank report the separate permanent financing that replaces a construction-only loan when it did not make the original construction loan? Specifically, should the bank report this loan as a home purchase or a refinance, and what application and action taken dates should it report?
A The separate permanent financing that replaces a construction-only loan is reported as a “home purchase loan,” even if the financial institution making the permanent loan did not originate the construction loan. Comment -3 to 12 CFR § 1003.2(j) explains that “[a] home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time.” This requirement applies regardless of whether the institution originating the separate permanent financing also originated the construction-only loan. In this situation, the loan is a home purchase loan, and must be reported as such, notwithstanding the fact that the permanent financing satisfies and replaces an existing dwelling-secured debt obligation and therefore may also be considered a refinancing. If, however, the permanent financing was replacing something other than a construction-only loan and comment -3 to § 1003.2(j) did not apply, the loan would be reported as a refinancing if the criteria in § 1003.2(p) were satisfied.
Further, for reporting purposes, the application date and action taken date associated with the separate permanent financing are determined under the standard requirements applicable to home purchase loans, regardless of who originated the construction-only loan. The application date, for example, is the date the borrower applies for the permanent financing that will replace the construction-only loan. § 1003.4(a)(1)(ii). Similarly, the action taken date is determined based on the date the institution takes action on the application for permanent financing and is not affected by the origination date of the prior construction-only loan. § 1003.4(a)(8)(ii); see comment 4(a)(8)(ii)-5.
For more information, contact ABA’s Terri Hollinger.
Please note that this section is not a substitute for professional legal advice.
