Son is borrower and lives in a home that is owned by parents. Parents are not on the loan. Guide says to code as investment if borrower does not or applicant will not occupy the property. In this case applicant/borrower is living in house as primary residence so do I code as primary residence even though he has no ownership in the property? I am probably making this more confusing than it actually is, but I am unsure of proper reporting.

Can't be his primary residence if he doesn't own it. Needs to be coded as an investment home.

Thank you. That was my initial thought, but it is confusing to me because it references applicant or borrower which parents are neither.

I agree that that section of Reg. C doesn't read very well. Basically, i don't think they contemplated (or at least, didn't explicitly mention) loans where the dwelling securing the loan isn't owned by the borrower.

I am going to take an opposite stance.

The occupancy codes are:

1 - principal residence (not owner occupied)
2 - Second Residence (again not owner occupied)
3 - investment property

. Principal residence. Section 1003.4(a)(6) requires a financial institution to identify whether the property to which the covered loan or application relates is or will be used as a residence thatthe applicant or borrower physically occupies and uses, or will occupy and use, as his or her principal residence

Nothing in this section that I can find implies the residence must be owner occupied in order for it to be used as a principal residence..

I really don't disagree Dan....i just know this whole thing was argued back when the HMDA changes came down the pike, and the consensus we came to at that time was that "investment" was the right option. As i said above, i don't think it's very clear really. Here's a previous thread:

previous discussion

I would however point to the terminology you quoted above:

1--principal residence (not owner occupied).....the owners don't occupy the dwelling. The borrower does, but not the owners.

I don't think my response in that thread differs from the above opinion and it is a different scenario. The home was the son's principal residence and both he and the father were borrowers.

And as you stated in that thread:

Occupancy now is tied to the "borrower", not the "owner" as it used to be. I agree with TR--if either of your borrowers lives in the home as a primary residence, i think it should be reported as a principal residence.

Prior to the 2018 changes everything was tied to who owned the property. The 2018 revisions changed that to the "applicant" and "borrower".

Are the occupancy codes you quoted above from the FIG Dan?

I honestly think they did a really poor job in the regulation on this subject....but if that's how the code reads, isn't that at odds with the rest of the regulation?

Are the occupancy codes you quoted above from the FIG Dan?

They were taken from our data input sheet.

Occupancy Type:

1. Principal Residence (To be occupied by the applicant/borrower as their principal residence.)
2. Second Residence (To be occupied by the applicant/borrower during any portion of the year, i.e. vacation home.)
3. Investment Property (Rental properties or properties to be purchased and resold where the applicant or borrower will not occupy the property at any time.)


From page 15 (PDF 16) in the FIG

Occupancy
Type
Numeric
1
2
3
Descriptions:
1. Principal residence
2. Second residence
3. Investment property

isn't that at odds with the rest of the regulation?

I'm not sure what you are referring to.

If you search the FIG, GIR or the regulation for "owner occupied" you won't get any hits.

Like i said above.....i'm sort of ambivalent. If you check out the above thread starting with dutchbltz's post at 12:45 p.m. and everyone's responses after that....the consensus at that time was for "investment home" in the same scenario. I was confused then and i guess i still am....as i was mainly arguing your point in that thread.

Well that thread was just after the new revisions came out and I'm sure we all were still getting use to the change from "owner" to "applicant/borrower".

I am comfortable with reporting how I outlined my opinion based on the wording of the regulation. Nothing the in the GIR, FIG, regulation implies "ownership".

If doesn't say the property has to be the applicant's/borrower's principal residence (as in ownership), it says the property has to be used ast the applicant/borrower's principal residence.

Original poster here. So I guess the consensus is to pick a side and go with that. I see both sides, but it does refer to borrower/applicant and not the owner. Thanks for the discussion.

The more i read that section, i have to say that i think it does read as Dan says, even though that goes against every fiber of what i've always thought of a "primary residence" being. I should have stuck to my guns back in 2017 or whenever that thread was.

ETA: For such a radical change, i still hold to the belief that the commentary should have had a comparable example. The entire industry has always been geared around the idea that for a dwelling to be someone's "primary residence", they must first own it. An example that actually fits instead of nothing but examples where the borrower and the property owner are one in the same would have been nice.

Taken from Section 35 of Reg. Z:

(a) Definitions. For purposes of this section:

(1) "Higher-priced mortgage loan" means a closed-end consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set:


"secured by the consumer's principal dwelling".....as far as i can see, we don't really get a definition in Reg. Z of what a "principal dwelling" is....just lots of references (HPML, HOEPA, rescission, etc.) to it. Now that Reg. C has opened up a world where the consumer's "principal dwelling" doesn't even have to be owned by them, how are we to know that we haven't been misinterpreting Reg. Z for decades?

The more i read that section, i have to say that i think it does read as Dan says, even though that goes against every fiber of what i've always thought of a "primary residence" being.

Well the 2018 revision was a big change in that from the inception of HMDA everything was based on ownership status. The 2018 revisions even changed the waterfall for home improvement and refinancings. That was a change that took me sometime to get use to.

i've always thought of a "primary residence"

I can understand this as we have had instilled in our minds "primary residence" being the residence the consumer owns and resides in the majority of the time.

I rented an apartment for several years. Although I did not own that apartment I used it as my principal residence.

The 2018 revisions changed the occupancy status to how it is used by the applicant/borrower. As you stated that was a big change in how occupancy status had been determined for decades prior to the 2018 revision.

As laf0915 stated, this has been a good discussion.

Because they are separate regulations that do two totally separate things. You do not use one regulation's definition in another regulation. In Regulation Z, an ownership interest is required. As far as Section 35, for example, if you break it down it is very clear. You start with "the consumer's principal dwelling". So, if you drop the qualifier of principle, you end up with "the consumer's dwelling". The dwelling is not the consumer's, it belongs to someone else if they have no ownership in the property.

This is further substantiated in the rescission rules.

1026.23(a) Consumer's right to rescind. (1) In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (f) of this section.

I agree that Reg. Z is clear about the definition when it comes to rescission. As for the rest, i just don't get a system where "the consumer's principal dwelling" is all we get.......

I could throw out phrases like "the consumer's primary mode of transportation"....."mode" is a noun, just like "dweling" is a noun. So if the answer to the question of "what is the consumer's primary mode of transportation" is "the city bus".....there is no ownership.

As it is Randy, i have no doubt that Reg. Z's definition of a "primary residence" is exactly what we have all agreed it is........just that in my opinion, Reg. C handled all of this pretty clumsily.

I guess at the end of the day, what i'm getting at is..."primary residence" to me seems to be an established term in the industry, taken i guess from Reg. Z's definition.....i think the industry, if you polled 1000 compliance people, would say something like "a residential structure, owned by the consumer, that they live in for a majority of the year" or something similar. If Reg. C's goal was simply to know whether borrowers live in structures most of the time, regardless of ownership, then they should have come up with a different term...."occupied residence" or something.

Randy,

Can you please give your opinion on the original question. Thanks.

-Megan-

Not Randy, but I think the answer to this question is pretty clear from the wording of the regulation and the official comments:

(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.

2. Principal residence. Section 1003.4(a)(6) requires a financial institution to identify whether the property to which the covered loan or application relates is or will be used as a residence that the applicant or borrower physically occupies and uses, or will occupy and use, as his or her principal residence.

4. Investment Properties. . . . For purposes of § 1003.4(a)(6), a property is an investment property if the borrower does not, or the applicant will not, occupy the property.

The CFPB knows how to use the term "owner" and how to use the term "borrower." Everything in this regulation says "borrower" not "owner." Ownership of the property is simply irrelevant to this issue. The fact that this particular situation is rare doesn't mean that we assume CFPB didn't consider it and we should read into the regulation something that is not there. As Randy said, Reg. Z is a different regulation with a different purpose based on different statutes. We don't incorporate Reg. Z language or principles into Reg. C unless Reg. C expressly refers to Reg. Z (the way that Reg. X does for the definition of "business purpose" transactions).

No arguments from me.