Compliance Alliance Q&A 7/2/2019

Question:

If someone inherits a house and has plans to demolish it and build another house, what is the HMDA purpose?

 

Answer:

There is no bright-line rule in the regulations or guidance that delineates when a loan like this crosses the line between “Home Improvement” and “Home Purchase.”  Many banks consider a loan to cross into new construction when the old home is being completely torn down, including the foundation. At that point, if the lender is going to be doing the construction-permanent financing on the new house, the loan would generally be considered a “Home Purchase” transaction. This is just an example, however, and the bank’s own internal policy needs to make this delineation so that it can consistently evaluate this kind of loan any time it comes up in the bank.

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.

Comment 3 to 1003.2(j): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/2/#2-j-Interp-3

 

Home improvement loan means a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located.

1003.2(i): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/2/#i

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