Question & Answer

Question: I'm struggling to explain why HMDA treats these two situations differently. First, a loan for the purpose of purchasing a house, where the loan proceeds provide for the down payment and the collateral taken is unimproved land, is, a non-reportable loan. Second, a loan for the purpose of purchasing a house where we also take a house as collateral which would be reportable on the LAR. Since both transactions involve a home purchase, I am having trouble explaining this to loan personnel.

Answer: This is tough to explain, especially when lenders are looking for a reason. Sometimes I find that a little history helps to understand what is going on, especially when the rule doesn't seem to make sense. Compliance doesn't always make sense. In this case, the confusion comes from having to draw the line somewhere and this is the place.

Now for the history. HMDA was originally thought up because of allegations that banks were unwilling to lend in certain areas (generally older housing and minority neighborhoods) and too eager to lend in the suburbs on new construction. HMDA was designed to document and report where lenders actually lend and on what kind of housing. Given this history and purpose, the unimproved lot simply isn't relevant, particularly if it is unrelated to the home purchase transaction. It is simply a piece of security property floating out there, much like stocks or a car.

However, where the collateral is a house, we have more trouble saying that the security property is not relevant to HMDA. It is, in fact, a dwelling. This strikes to the heart of the concerns that HMDA is designed to measure: will you lend in my neighborhood in spite of who lives there and how new or old the houses are. So, this security can't be excused from HMDA coverage even though it is taken for the same purpose as the raw lot.

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 10, 8/97