Is the Refinance of Commercial Loan HMDA-Reportable when Cash Out Proceeds Are Used to Purchase Residential Property that Does Not Secure the Loan?

Bank is refinancing a commercial loan secured by a commercial property, with cash out that will be used to purchase a mixed-use property with three retail and seven residential units. The mixed-use property will not secure the loan. Is the loan HMDA-reportable?

Sometimes, HMDA seems obscure or, rather, contradictory in the possible interpretations that its rules can be provided. However, in this case, the rules intermingle nicely and provide a clear answer.

The property purchased with the cash-out portion of the refinanced amount was used to purchase a mixed-use property. Under HMDA, the Bank may use any reasonable standard for determining the primary purpose of a property. Official Commentary, 1003.2 (Home Purchase Loan) – 2. For the purposes of our analysis, however, let’s assume that the mixed-use property is a dwelling.

For multi-purpose loans, the general rule is that a loan made for a home purchase is reported as such, even if it is a refinance. A “home purchase loan”, however, is a home secured by and made for the purpose of purchasing a dwelling. 12 CFR 1003.2(h); Official Commentary, 1003.2 (Home purchase) – 7. While this loan was made for the purpose of purchasing a dwelling, it is secured by a commercial property, since there is no collateral interest in the dwelling. Thus, it is not a home purchase loan.

A home purchase loan also includes a loan secured by one dwelling and used for the purchase of another dwelling. Official Commentary, 1003.2(Home purchase) – 1. Again, the loan in question is secured by a commercial property, not a dwelling. Therefore, it is not a home purchase loan.

Is the loan reportable as a refinance? A refinancing is a new obligation that satisfies and replaces an existing obligation by the same borrower when, for reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. 12 CFR 1003.2(k). In this case, the existing obligation and the new obligation are secured by a lien on a commercial property. For HMDA purposes, it is not a refinance.

Since the loan is not a home purchase loan or a refinance, and since it is not a home improvement loan, it is not HMDA-reportable.

This entry was posted on Friday, April 25th, 2014 at 6:59 pm.