Previously under HMDA if we were taking a temporary unreported Bridge loan into its final permed out stage, we would report this as a purchase (a consistent practice that we got the OK from FDIC for). Now, with the new 2018 info, are they wanting us to report his as a purchase or a refinance? Seems like I read something somewhere but can't put my finger on it. Any help would be appreciated. Thanks!

It no longer meets the definition of "temporary financing" (1 phase) and because they are buying a new home, it's a purchase.

Here's what the reg says:
"Lender A extends credit in the form of a bridge or swing loan to finance a borrower’s down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A. The bridge or swing loan is excluded as temporary financing…" because the bridge loan will be replaced by permanent financing. [Commentary to §1003.3(c)(3) #1(i)]

Thanks so much! Some would argue that this 2nd round is a refinance since we are paying off and replacing a dwelling secured loan with another dwelling secured loan to the same borrower. Just want to make sure its a purchase before I put it in my processes/procedures.

It smells like a refinance, but the regulation is clear that it's a purchase. You had a request to purchase a house. You made a bridge loan (which is not reported) and then you report the 2nd phase. The entire request was for a purchase, so the 2nd (reported) phase is a "purchase".

We've discussed this before and not everyone agrees, but I apply the same logic to a home improvement loan that is broken into 2 phases. The 2nd phase is a "home improvement" loan, not a refinance. [I'm not trying to ope that can of worms again]

FWIW, I agree

Thanks David! This is exactly what we have been doing on both scenarios.

I am jumping on this thread because I am still confused as to what we should report. I have read the reg and the various loan scenarios and apparently I am still confused on this. Can someone advise if I am understanding this correctly?

If we have a temporary loan that is eventually replaced by a permanent loan that repays the temporary loan - we will not report the temporary loan because it will be replaced (and captured) in the permanent loan.

If we have a temporary loan that is not replaced by permanent financing, we do not report.

Just when I think I have this straight, I don't.

Thanks in advance.

If we have a temporary loan that is eventually replaced by a permanent loan that repays the temporary loan - we will not report the temporary loan because it will be replaced (and captured) in the permanent loan.
I agree.

If we have a temporary loan that is not replaced by permanent financing, we do not report.
You don't report temporary loans, but you do report short term loans. Can you give an example of a temporary loan that is not replaced by permanent financing?

If you have a construction only or a bridge only loan/line, you do report it. It must be followed by permanent financing to be excluded as "temporary financing". It might help to read the Commentary to §1003.3(c)(3).

Thank you David!

I have a follow-up on this.

Let's say the customer gets a temp financing bridge loan from Bank B to purchase their new house. They intent to repay with perm financing so Bank B does not report this loan on their LAR.

That customer wants to do their perm financing with us, and not with Bank B (who has the temp loan). All we know is that the customer wants to 'refi' their old loan from another lender. Are we supposed to dig to see if the loan with the other bank (B) was a temp/excluded loan, so that we report on our LAR as a 'purchase'? Or are we okay just seeing that our loan is indeed paying off a dwelling-secured loan from another bank to the same borrower, and we just go along and report as a 'refi'?

Thank you.

Dig? No...but more often than not, a customer elaborates on what it is they are trying to accomplish and then it's up to interviewing staff to document.

Joker is right. However, I see the point Banker K is making. It could appear to be a refinance because Bank A doesn't know the original purpose of the loan at Bank B. IF you have knowledge that Bank B made a construction or bridge loan, then Bank A's permanent financing should be reported as a "purchase".

Let me put it another way: If there's no documentation that Bank B's loan was a bridge loan, how would an examiner/auditor know that it was?

I have a question on a twist of the bridge loan scenario. The typical way it's done in our area is the customer gets a bridge loan from Bank A, secured by their existing home, to get equity to use as downpayment on the purchase of the new home. Within days of closing on the bridge loan, Bank A makes a permanent loan to the customer, secured by the new residence. When the original home sells, the bridge loan is paid off from the sale proceeds.

Given that scenario, is the bridge loan considered temporary financing? It is not intended to be repaid from the proceeds of a permanent loan, but rather from the proceeds of the sale of property.

Let me clarify:
You're saying Bank A makes 2 loans simultaneously rather than a bridge loan followed by a permanent loan? The bridge loan is paid off when the current home is sold. It is not paid off by a new loan. Is that correct?

David,

Correct. The bridge loan is paid from the proceeds of the sale of the existing home, not from proceeds from a permanent loan.

Under the new rules, it is my understanding that this type of bridge loan will now be HMDA reportable as it was not designed to be replaced by another loan.

Under the old rules, bridge loans were not clearly defined but (arguably) automatically excluded by definition:
(d) Excluded data. A financial institution shall not report:
(3) Temporary financing (such as bridge or construction loans);

The new rules, however, do not include the “such as bridge or construction loans” phrase. In addition, the example for a bridge loan in the commentary references getting a new loan:
i. Lender A extends credit in the form of a bridge or swing loan to finance a borrower's down payment on a home purchase. The borrower pays off the bridge or swing loan with funds from the sale of his or her existing home and obtains permanent financing for his or her new home from Lender A. The bridge or swing loan is excluded as temporary financing under § 1003.3(c)(3).

Therefore, it is my understanding that a bridge loan will only be exempt from the new HMDA rules if it is “designed to be replaced by permanent financing at a later time.”

In Sewanee's example is the short term loan reported as a purchase? I would assume so but wanted to be sure. Also, what about occupancy? At the time the loan was made it was their primary but within days they will be moving into the house being purchased.

This is a unique situation that HMDA doesn't address, but I would say that funds from both the short term loan and the permanent loan are being used for the purchase, so I would report both as a purchase.

I see this situation substantially similar (but obviously different) to this:
4. Second mortgages that finance the downpayments on first mortgages. If an institution making a first mortgage loan to a home purchaser also makes a second mortgage loan or line of credit to the same purchaser to finance part or all of the home purchaser's downpayment, both the first mortgage loan and the second mortgage loan or line of credit are home purchase loans.

To address the second part of RR's question since the property is the borrowers principal residence at the time the loan is made that would be the occupancy status I would report.

(6) Whether the property identified in paragraph (a)(9) of this section is or will be used by the applicant or borrower as a principal residence, as a second residence, or as an investment property.

I've had a situation where two loans were reportable. Both were reportable as Primary Residences because at the time, the one residence WAS and the new residence was purchased for that purpose. It felt odd, but facts are facts!

Here's another scenario... We have a new loan that will be providing permanent financing for a bridge loan used to purchase an apartment building. Our new loan is in the name of an LLC, but the bridge loan is in a different name, the name of the personal guarantor. I'm assuming this would not be reportable as a home purchase because they are not in the same name. I know the same borrower rule applies to Refinancings, but I just want to be sure the same would apply in this scenario. Any thoughts are greatly appreciated!

Is the title to the property transferring to the LLC as well? If so, your loan will be reportable as a purchase.

AGree