Are Purchased Construction/Permanent Mortgage Loans HMDA-Reportable?

Issue/Inquiry

The Bank has purchased a pool of construction/permanent loans, some with one closing, others with two. The one-time construction loans are written on long term paper. The Bank does not anticipate having the loans longer than 12 months because the mortgage company it is purchasing them from will take them out for permanent financing on the secondary market once construction is completed.  The mortgage company will retain the servicing for draws and payments.

The Bank asks whether these loans are HMDA-reportable. If so, the Bank also asks:

• Are the loans reported when they transition to permanent financing or are they reported now?
• Are the loans reported as purchased?
• Does the mortgage company have to report them as sold?
• Could the loans put the Bank over the 25-loan threshold for the year, even though it did not originate them?

Response Summary

If the Bank has not purchased an interest in a pool of loans but has purchased the loans themselves, the construction/permanent loans are HMDA-reportable as home purchase loans. The loans purchased would not be counted towards the 25-loan threshold.

Response Detail

HMDA-Reportable

The purchase of an interest in a pool of mortgages, such as a participation certificate or mortgage-backed security, is not HMDA-reportable. 12 CFR §1003.4(d)(4). Therefore, if the Bank has purchased such an interest in the loans in question, the transaction would not be HMDA-reportable.

If by use of the term “pool” the Bank is simply referring to a group of mortgages that it purchased, the loans would be HMDA-reportable if they were made for the purchase or improvement of residential property or were for the refinance of a loan secured by a dwelling. 12 CFR §1003.4(a)

Under HMDA, a construction loan is ordinarily not HMDA-reportable, as it is considered temporary financing, which is excluded data. 12 CFR §1003.4(d)(3)

The FFIEC guidance explains that construction and bridge loans are illustrative, not exclusive, examples of temporary financing. Such examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. FFIEC, Regulatory & Interpretive (FAQs).

When there is a commitment for permanent financing from the same lender, however, a construction loan becomes HMDA-reportable as a “home purchase” loan. This includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered “temporary financing” under Regulation C and is not reported. Supplement I to Part 1003, Staff Commentary, 1003.2 – Home Purchase Loan – 5.

Provided that the purchased construction loans involve residential property, they would be reported on the HMDA Loan Application Register (“HMDA LAR”) as home purchase loans, since the lender made a commitment for permanent financing.

When Loans are Reported

The commitment to permanent financing makes the loans reportable now as home purchase loans. The “Application Date” would be “NA.” The “Date of Action” would be the date the Bank purchased the loans.

Reporting as Purchased

The “Type of Action” on the HMDA LAR would be Code 6: “Loan purchased by your institution.”

Reporting by Mortgage Company

The mortgage company will be required to report the type of entity purchasing a loan that it originated or purchases and then sells within the same calendar year. 12 CFR §1003.4(a)(11).

HMDA Threshold Test

The Consumer Financial Protection Bureau has indicated in its Informational Guide Letter of December 22, 2016 that a financial institution will not be subject to HMDA requirements in 2017 unless it: (1) meets the current Regulation C asset-size, location, federally-related, and activity tests; and (2) originated at least 25 home purchase loans, including refinances of home purchase loans, during the previous two calendar years. Purchased loans, therefore, would not be counted towards the 25 home purchase loans.

 

This entry was posted on Monday, July 24th, 2017 at 1:34 pm.