Stated purpose of temporary loan was for a major remodel and permanent financing would replace it when the remodeling was complete. It turns out that the borrowers did not use the funds at all and financed the remodel with their own funds and the selling of an asset. So now the permanent financing has been put in place essentially paying off this loan. My question is do I refer back to the original intent of the temporary loan (home improvement) or do I base the purpose on what I now know which is that these funds were not subsequently used for home improvements and consider the permanent financing a refi?

I'm of the belief that these kinds are always refinances, but even if you're not, i don't see how you could code this as HI when no bank funds were used for HI. I think you have to code it as a refi.

I am definitely leaning toward your side of the logic on this one raitchjay. Just not sure how stated original intent plays in here.

If they never used the funds then is there an existing dwelling secured obligation being satisfied and replaced?

Thank you Dan for that question...I did some more digging as it didn't make sense to me how the borrowers had to bring in cash to close but it was communicated that the funds for the remodel weren't used...it turns out that the original loan was a construction loan to both purchase the dwelling and then a portion of the funds was made available to remodel (it was about $40,000). Now this changes things in my head and perhaps I am wrong...but wouldn't that make this a purchase? My thought is that you go to what the original intent of the temporary financing was, in this case purchase/remodel. Purchase trumps remodel, and even if it didn't, they didn't use the funds for remodeling anyway.

If you're perming out a construction only loan, then it would be reportable as a purchase.

So if the temporary financing was for purchase/hi, then the permanent piece is a refi? I thought the guidance was to refer back to the original purpose of the temporary financing to determine the purpose on the end loan.

Purchase.

OK, you made a temporary draw note to purchase the home and to do renovations to the home but they never utilized the available draws for the renovation . They completed the renovations with their own funds and you are now refinancing the temporary purchase loan. I would report this as a purchase, it's basically a 2 phase loan. A short term loan to purchase and renovate then convert to permanent.

I would not however classify it as a construction to perm loan since the initial loan was for the purchase and renovation of the home. It was not to construct the home.

Uhoh, so you are saying the original loan was short term and should have been reported?

I believe Dan is of the school of thought that perming out a temporary (non-reportable) purchase loan leads you back to a 'purchase' when you perm it out. I don't believe he is telling you that the original temporary loan should have been reported.

(Others, like me, report these as refinances.) (Not trying to speak for Dan.) (And sorry, i focused on your use of the word "construction" in your explanation...i should have realized as Dan said...they were purchasing a dwelling, not constructing one.)

Thank you all for your feedback on this one. I feel comfortable with the purchase determination.

Hoping I can get some confirmation on another situation.
Borrower is satisfying and replacing their $0.00 HELOC (which we opt not to report) with a dwelling secured closed-end loan in which they received cash out in excess of $100,000. The stated intent for the funds was to purchase a vacation home in warmer climates. My recollection of the GIR and advice on the threads is that stated intent is acceptable for purpose, so in this situation, this would be reported as a purchase. Just want some confirmation as my HMDA confidence has been kicked in the you know where.

To your original question - the temporary loan, which I referred to as short term, would not have been reportable. We treat these as 2 phase loans similar to our 2 phase construction/perm loans and we report the intent of the temporary loan when we convert it to permanent financing. However others, such as raitchjay reports them as refinancing.

To your second question - yes, it would be reported as a purchase.

Dan, Joker or anyone else who wants to chime in: the beginnings of this thread, and the question of how to report the perm out loans of temporary HI got me thinking about new HMDA in 2018, and if there is any clarification on the issue. After thinking about it, the only thing that pops in my head is that refi has 'leap-frogged' HI in the hierarchy......so does that solve this issue and mean there's no more gray area....a permanent loan that replaces a temporary HI loan will (with no gray area) be reported as a refinance?

Just curious.

Back to this question, remember that if the vacation home is not the US or Puerto Rico, it isn't a dwelling for HMDA purposes and the loan won't be reportable.

Thank you HMDAgal, great point, can't just assume that its meant to be in the US for warmer climates. However, being in the great white north, Chicago is warmer climate

To an extent maybe...but I would still consider the actual one discussed here to be a purchase. Not a refi...so that didn't solve anything for this circumstance. I haven't had time to see if the revisions speak to it.

If you pay off an existing dwelling-secured loan with a new dwelling-secured loan, how is that not a refi?

And i'm not trying to open up the current can of worms on how to report...i understand both sides.....you just seem to be saying it can't be a "refinance"....and that i'm not following...i can see the argument under current rules for BOTH a refi and a purchase......am wondering if the new hierarchy in 2018 sheds any light on the subject.

Dunno

I've read the responses and questions above and I want to ask something along that line.....maybe.....

We have a borrower who made a loan (12 months) to by out siblings and remodel home....He will convert to permanent financing when remodeling is complete.

So do I report or not.....I am soooooooo confused.....16 years later is too long to come back into HMDA

The perm loan is reportable, without question. The only question is whether you report it as a refi or HI. Take your pick, based on the arguments made in this thread, i guess.