Is a Loan HMDA-Reportable when the Proceeds are Used to Purchase another Property?

Issue/Inquiry

The Bank asks whether a loan secured by a multi-family residence that has a primary purpose of cash is HMDA-reportable if the funds will be used to buy another residential property.

Response Summary

The Bank would report the loan as a home purchase loan, since a portion of the loan proceeds was used to purchase a dwelling and since the loan is secured by a residential property. The location reported would be that of the residential property securing the loan. The amount reported would be the entire amount of the loan.

Response Detail

Home Purchase Loan

Under Regulation C, which implements the Home Mortgage Disclosure Act (“HMDA”), a “home purchase loan,” is a loan secured by and made for the purpose of purchasing a dwelling. A “dwelling” is a residential structure. 12 CFR 1003.2.

In this case, the loan proceeds are being used to purchase a dwelling, but the dwelling securing the loan is not the one being purchased.

Is the loan, then, HMDA-reportable?

According to the Staff Commentary to Regulation C, a home purchase loan includes a loan secured by one dwelling and used to purchase another dwelling. Staff Commentary, ¶1003.2(g)-1.

As such, a loan does not have to be secured by the dwelling being purchased, as long as it is being used to purchase the dwelling and is secured by a dwelling.

Location

When a home purchase loan is secured by a dwelling other than the one being purchased, the institution reports the property taken as security. Staff Commentary, ¶1003.4(a)(9)-2.

Multiple Purpose/Amount

The question notes that the “primary purpose” of the loan was for cash-out to purchase a residential property. What if the loan was also being used to refinance an existing mortgage on the property securing the loan?

Regulation C assigns an order of priority to loans used for multiple purposes. If a loan is used for home purchase, refinance, and home improvement, it is reported as a home purchase loan. Likewise, the Bank would report the entire amount of the loan as a home purchase loan, even though some of it was used for a purpose other than home purchase. Staff Commentary, ¶1003.4(a)(3)-2; ¶1003.4(a)(4)-1.

 

This entry was posted on Monday, April 4th, 2016 at 3:00 pm.