We have a business borrower that is in the business of real estate and is purchasing a dwelling to be operated as a rental / Airbnb. Wuuld that be reported in HMDA?

If the renters will be transitory, such as daily or weekend rentals, i would exclude as transitory housing.

IMHO this is an investment property for the borrower.

4. Investment properties. 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 an investment
property. 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. For example, if a person purchases a
property, does not occupy the property, and generates income by renting the property, the
property is an investment property for purposes of § 1003.4(a)(6). Similarly, if a person
purchases a property, does not occupy the property, and does not generate income by renting
the property, but intends to generate income by selling the property, the property is an
investment property for purposes of § 1003.4(a)(6). Section 1003.4(a)(6) requires a financial
institution to identify a property as an investment property if the borrower or applicant does not
or will not occupy the property, even if the borrower or applicant does not consider the property
as owned for investment purposes. For example, if a corporation purchases a property that is a
dwelling under § 1003.2(f), that it does not occupy, but that is for the long-term residential use of
its employees, the property is an investment property for purposes of § 1003.4(a)(6), even if the
corporation considers the property as owned for business purposes rather than investment
purposes, does not generate income by renting the property, and does not intend to generate
income by selling the property at some point in time. If the property is for transitory use by
employees, the property would not be considered a dwelling under § 1003.2(f). See comment
2(f)-3.

That's interesting, Dan. Our Compliance Officer considers ANY residential property that is "transitory" in nature, NOT reportable. He uses a standard of "year or more lease" - long term and reportable. "Less than one year" - short term, transitory and not reportable.

A hotel is short term "transitory" leasing and there ARE hotels that are "extended stay" that have full kitchens, and people rent the units for a month, maybe more. But those AREN'T reportable?

Similarly, a person owns a bunch of houses, or an apartment building that are rented short term (a vrbo or Airbnb arrangement) but those ARE reportable?

I don't see the difference.

I agree about AirBnBs, and I think I remember unofficial guidance or someone heard from the CFPB about that? Nothing formal that I've seen though. Another tricky twist is a 1-4 being purchased to be an AirBnB, but there's no documentation about what it was used for before purchase. I really wish we had some actual guidance on short term rentals. They are common enough to have something.

Less than one year doesn't sound like a great test though. I'm sure there are plenty of people living in a non-transitory manner in a house paying month to month rent.

The commentary says "Also excluded are transitory residences..." and then goes on to list some examples. What is the big difference between a hotel (listed) and a cabin or other temporary rental where the guests pay and stay for a day or two? Are we to say that hotels are transitory and therefore not reportable, but not motels since they're not listed in the examples? Personally, i feel like it's pretty clear if you look up the definition of "transitory".....but yeah, some official guidance would be good. IMO, you have to start with the definition of a "dwelling" before you move on to a reporting definition of investment homes, which are assumed to already have passed the definition of a "dwelling".

If the examples are supposed to be exhaustive, and contradictory to the definition of "transitory", then they should be really clear that it better be in the examples.

ETA: i should clarify....when i say contradictory to the definition of "transitory" i mean in the sense of using the word "transitory", but then using an exhaustive list which does not include other examples which are just as transitory. LIke i couldn't say "exempt from tax are citrus fruits such as oranges and lemons" and then charge a tax on limes.

I sent an email to HMDAhlep@cfpb.gov to get an opinion. Once I receive their response I will post it.

Individual purchases a dwelling that will be used exclusively as an AIR BNB / VRBO.

Would this be considered transitory housing, short term rentals, or would it be a covered transaction subject to reporting as an investment property for the borrower?

Thank you,
Dan

Actually, a person who purchases a dwelling and states that the property will be an Airbnb or VRBO, or something similar, could change that at the drop of a hat and start treating the home as a regular rent house. For example, the borrower's intent is that the house will be used as an Airbnb but finds that because of the location, the house doesn't rent well and would be better suited to being rented as a regular rent house. I agree with Dan. The house, no matter how it's rented, is still a house and still an investment property.

It's true, though, that the airbnb/vrbo concept is relatively new and very popular today. We need guidance, as such a concept was never thought about when HMDA was written or amended.

He uses a standard of "year or more lease" - long term and reportable. "Less than one year" - short term, transitory and not reportable.

This is a dangerous concept IMO. A short term rental does not automatically qualify the property as transitory. If it did I could exempt about 95% of all rental properties we finance. A lot of them are rented to students at Indiana University on 9 to 12 month leases.

If I rent a house on a month to month basis with no written agreement does that make it transitory? My renter may be there 3 months or they may be there 3 years. How do you make that determination based on the above criteria?

I do not believe the transitory housing exemption was meant to exempt vacation rentals.

I will post the CFPB's opinion once I get a reply from HMDAhelp.

A person could say they were buying a rent home and then move into it as a primary residence. That wouldn't mean that the bank is in trouble for not disclosing the loan as a TRID loan. The bank has to deal with what the customer says they intend. They don't have to deal with "what if the customer is lying?".

I just want to add this:

Borrower purchases old hotel, does minimal renovations (basic overall structure and structure of the rooms stays about the same) and starts treating it like an apartment building, i.e. people start "living" there. I think we would all agree that the fact that there once stood a "hotel" sign out front doesn't make this loan exempt as transitory housing. Why? Because it's inhabitants "live" there.

So to me, it's obvious that the intent behind the examples given (hotels, hospitals, dormitories, etc.) is that those places aren't included in the definition of a dwelling for one reason.....people may sleep there, but they don't "live" there. As the regulation used to say (and in my opinion, no longer does simply because it's inherent in the definition of "transitory") they have primary residences elsewhere.

So in my opinion, that's the whole thing......cabins at the lake, Airbnb's, VRBO's, hotels, motels, whatever they are....when absolutely no one lays there head down at these places for more than a week or two at a time....that's the definition of "transitory". People who rent homes to "live" in is a totally different game. People can and do go their entire lives without owning homes--they rent and "live" at those homes. Such loans are reportable. That's the difference. At least in my humble opinion.

Just to let everyone know I haven't forgotten about this. I'm still waiting to hear back on my inquiry.

Dan....i'm curious and i figure now is the time to ask as opposed to later when you get the answer....but how binding do you take answers from HMDA help to be? I don't really put a lot of stock in it....i would prefer they address the issue via an FAQ, but i don't guess that's going to happen. It seems to me that a question to HMDA help is always sort of susceptible to the "lowest common denominator" ....you know what i mean? Could be one of hundreds of people answering.....and it just seems like that person's opinion.

Not Dan, but if it's in writing from the CFPB, then I put a decent amount of stock in it. If it's not in writing, then... there's probably a reason they aren't putting it in writing. They are pretty well trained not to put anything in writing that is just their opinion. At least in my experience.

Back in the days when the Fed owned HMDA Help, it was a complete joke IMHO. Not sure if that's changed.

The HMDA Help Line does not put anything in writing. They will call you to discuss.

The HMDA Help Line does not put anything in writing. They will call you to discuss.

This is what I was told in an email response. I had to call a number and give them times and dates I would be available. The recording told me one of their attorneys would be calling me to discuss. So far no phone call.

how binding do you take answers from HMDA help to be

If they give me an actual opinion with supporting cites I will usually abide by that opinion regardless if their opinion agrees with mine or not.

If they just regurgitate the regulation then I most likely will stick with my opinion.

When I called about a topic that was hotly debated on here, I was given an opinion. However, she made it clear that it was just that, her opinion, and not the opinion or interpretation of the CFPB.

So, i just got a call from an Alexis at the CFPB (i submitted the question as well). Without my prompting, she started by saying it was a quite gray area in Reg. C and that there were no explicit instructions in the regulation. She went on to say that she believed that such scenarios would fit in to the definition of "transitory housing" and be exempt. This was all via a phone conversation and i received nothing in writing. As such, i feel like it's highly unlikely that either way would be cited in an exam so long as you can defend your own logic. Just wanted to report back.

I will add though that she touched on all of the appropriate parts of Reg. C (definition of "transitory", the definition of "investment homes") and seemed very on top of the subject matter.

Well by coincidence I had a voicemail from a George at CFPB while I was gone last week. I returned the voicemail yesterday and left the times best to contact me. I haven't heard back yet. I'm curious if I will get the same response from him when he calls.

Interesting - not trying to take this thread on a different topic, but does anyone use the "bright line" test for these scenarios? Meaning we look at the property as-is rather than what it is going to be. Using the "bright line" would suggest a dwelling is being purchased - the future use of the dwelling (transitory, day care, office, etc.) is irrelevant.

There were some good discussions on that "bright line", but the opinion of Alexis seems to contradict this?

Seems like using logic might be the best thing to do for all scenarios?

Well that's an interesting point and I will discuss that with George if he calls back.

We have a business borrower that is in the business of real estate and is purchasing a dwelling to be operated as a rental / Airbnb.

I originally thought the borrower was purchasing an Airbnb, but now I'm not so sure. If they were purchasing a dwelling to convert to an Airbnb then I would have to opine it would be a reportable purchase transaction using the brightline test.

The "bright line" test does throw in a different way to look at these...hadn't really thought of that. However, that suggests the part of the "bright line" test that i still have a problem with......for the "bright line" test to matter, the collateral has to be a "dwelling".....and that gets us going down that road. Simply because a structure can be used as a dwelling and looks like a dwelling (or used to look like a dwelling).....again, slippery slope in my opinion......but it's a salient point. I think there are undiscovered holes in the "bright line" test.