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#2302490 - 10/15/24 08:26 PM Occupancy changing to PR at modification
Compliance Nut Offline
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If a borrower initially closed on a one-time close CP loan and - at the time - it was intended to be a second home, then upon modification, it turns out the home will be used at the borrower's primary residence.....what's reported for HMDA? Second Home was originally reported on the LAR when the CP loan closed. Do we change it to Primary Residence since we know that's what it will be, or do we leave it alone?

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#2302491 - 10/15/24 08:46 PM Re: Occupancy changing to PR at modification Compliance Nut
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 85,438
Galveston, TX
I do not think that you go back and change reporting based on subsequent events. That is not what the loan was originally based on. If the loan was priced as a second home, you might even create a pricing outlier.
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#2302492 - 10/15/24 09:13 PM Re: Occupancy changing to PR at modification Compliance Nut
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I am struggling to find in the regulation where we would be in violation if we were to report that a property will be occupied as the borrower's primary residence upon the completion of construction. If a borrower can have only one principal residence, and we learn that the occupancy will in fact not be a second home, aren't we required to report what we know it to be according tot he definition? That's how I read Comment 4(a)(6)-2 below.

".....if an applicant or borrower buys or builds a new dwelling that will become the applicant's or borrower's principal residence within a year or upon the completion of construction, the new dwelling is considered the principal residence for purposes of applying this definition to a particular transaction."


Comment 4(a)(6)-2:

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. For purposes of § 1003.4(a)(6), an applicant or borrower can have only one principal residence at a time. Thus, a vacation or other second home would not be a principal residence. However, if an applicant or borrower buys or builds a new dwelling that will become the applicant's or borrower's principal residence within a year or upon the completion of construction, the new dwelling is considered the principal residence for purposes of applying this definition to a particular transaction.

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#2302493 - 10/15/24 09:21 PM Re: Occupancy changing to PR at modification Compliance Nut
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 85,438
Galveston, TX
Correct, but you said when the loan closed and this was a one-time close loan, that was not the case. Changing their mind sometime after the loan closes does not change what the intent was when the loan closed. If you modified this loan at the time the construction loan was completed to add the permanent phase, then this was not a one-time closing. Modifications are not reportable, so if that was the case, the permanent phase is not reportable.

"initially closed on a one-time close CP loan and - at the time - it was intended to be a second home"
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#2302494 - 10/15/24 09:22 PM Re: Occupancy changing to PR at modification Compliance Nut
raitchjay Offline
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Joined: Oct 2009
Posts: 9,378
OK
The issue is, that's referring to a "covered loan or application" and modifications aren't reportable. At the time of your covered loan, the information you had was that the property was to be a 2nd residence, so that's how it was reported and how it should stay.
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#2302496 - 10/15/24 09:24 PM Re: Occupancy changing to PR at modification Compliance Nut
raitchjay Offline
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Joined: Oct 2009
Posts: 9,378
OK
The "within a year" language doesn't mean you monitor the loan for a year to see if the occupancy changes...it means if you know at consummation that that's the plan, then that's how you report it.
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