Compliance Alliance Q&A 2/26/2019

 

Question: I have a HMDA question about construction loans. Our construction loans are 360 months plus 9 months interest. They are construction to perm. The first 9 months are interest only and then the 10th month includes principal &interest. Would we report this on HMDA as an interest-only loan?

 

Answer: If the loan is a single transaction--a construction-to-perm loan (one closing)--our interpretation is that you would report it as having an interest-only feature.  If this was two transactions, a construction-to-perm loan with two closings, then you would only report on the perm portion of the loan.

References:

The requirements of this part do not apply to: Temporary Financing... 12 CFR § 1003.3(c)(3) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#c-3

A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) 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.

Commentary to 12 CFR § 1003.3(c)(3)-1 https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#3-c-3-Interp-1

 Whether the contractual terms include or would have included any of the following: (ii) Interest-only payments as defined in Regulation Z, 12 CFR 1026.18(s)(7)(iv); 12 CFR § 1003.4(a)(27) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/4/#a-27

The term ‘interest-only’ means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; an ‘interest-only loan’ is a loan that permits interest-only payments. 12 CFR § 1026.18(s)(7)(iv) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/18/#s-7-iv

 

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