I took the original post to mean they were purchasing an Airbnb as well. But i still find it relevant to know what the consumer claims to want to do with the "dwelling". In a similar scenario, say where a customer wants to purchase a cabin on a lake to be used for weekend rentals (pretty common scenario for me in my neck of the woods), i would apply the same logic and exclude as transitory. Cabins can and are used as dwellings....but i personally wouldn't consider the bright line test applicable here.....you first need to know (IMHO) what you're dealing with ...and the only way to know if you're dealing with a dwelling is to ask what it will be used for.

I'll be interested in what George has to say as well......if he agrees with Alexis, that will be nice for me. If he disagrees....well, then i think it says something about the issue that we can't even get 2 people at the CFPB to agree about it. Either way, i think it's clear that it ought to be a lot better defined in the regulation than it currently is.

I know this is somewhat different but it clearly states, IMO, you look at the current use of the proceeds.

Construction and Construction/Permanent Transactions

1. My financial institution originated a loan to a builder to construct a dwelling for sale. The proceeds of the loan will be used to buy a house, demolish it, and rebuild a house for sale immediately after closing. Is this transaction excluded from HMDA reporting?

No. In the scenario described, part of the loan will be used for purchasing a dwelling in addition to constructing a dwelling for sale. Therefore, the transaction described above is not excluded from HMDA and should be reported as a home purchase loan. A construction-only loan or line of credit is considered temporary financing and excluded from collection and reporting requirements under comment 3(c)(3)-2 if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. Comment 3(c)(3)-2 to Regulation C, 12 CFR § 1003.3(c)(3).

Updated Nov. 14, 2018

If a business person is purchasing a residential structure (occupied or unoccupied) to convert to a Airbnb then they are, IMO, purchasing a dwelling.

But you have to go back to the definition of "dwelling". That reads how it reads.....but is purchasing a cabin that was previously used exclusively as weekend rental (the type of scenario that Alexis just said was "transitory"), a dwelling-purchase? No. At least, not according to what Alexis just told me.

So, if that question becomes "My financial institution originated a loan to a builder to construct a dwelling for sale. The proceeds of the loan will be used to buy a house (previously used exclusively as a weekend rental property), demolish it, and rebuild a house for sale immediately after closing. Is this transaction excluded from HMDA reporting""

I believe the answer becomes "yes". I think that FAQ dodges the issue of what makes something a "house".

but is purchasing a cabin that was previously used exclusively as weekend rental

Then they are not purchasing a cabin to convert to a weekend rental. It is already a weekend rental and if it has been determined to be a transitory residence then they are not purchasing a dwelling.

And if it is a transitory residence and the intent is to convert it to a primary residence then I would go so far as to say it would not be a reportable purchase under the bright line test. The structure does not meet the definition of dwelling at the time it is being purchased.

I think they opened a huge can of worms with the bright-line test. I think they thought they were clarifying things, but i think they just muddied the waters really.

Your last statement i find highly logical if they indeed want to draw the line in the sand regarding the "bright line" test.

I agree, raitchjay. For me, It's definitely where I battle between "letter" and "spirit" of the law. Bright-line can definitely help with consistency of reporting, but I think it muddies the intentions of HMDA.

For example, "letter" of the law says a mobile home pad is considered a dwelling, and unfortunately, we have to accept that because it's in stone. However, IMO, the intentions would suggest that the pad is looked at of what it is "going to be" in the future (more than likely would have a dwelling placed on it). Might be a far reach, but it does make sense to me from a logical (and possibly questionable) standpoint.

The differing opinions from the CFPB would say others have challenges interpreting between the "letter" and the "spirit" as well. I do agree as well that the FAQ seems to address the transaction rather that the dwelling aspect. It defo would be beneficial if there was a bright-line answer in all of this. That's my two cents. Seems like this pot has been stirred (for better or for worse):P

When i was a kid, there was an old (and i mean old....probably built in the 1920s, if not earlier) house on our place that no longer had doors or windows. We used that old house as a hay barn....we could get about 100 bales (small square bales back in those days) in there. I do not believe that structure was a "house" any longer--it was a barn......and we didn't have to do anything to "convert" it....we didn't tear out anything and we didn't add anything. If such a structure were to exist today (and i'm sure somewhere it does), i don't believe a loan that would include funds to tear it down would be razing a "dwelling". I feel like that's an important point to consider when thinking about the "bright line" FAQ language. I suppose if the LAST use of the structure was as a dwelling, no matter how long ago, then you could still take the stance that you were razing a "dwelling" (not sure i would take that stance, but i would understand it). But if the last use was as something else (barn, storage building, etc.) then i definitely would not. And i think the term "house" is thrown around a lot, including by the CFPB, without worrying much about the definition of it.

Just to make this more fun. I spoke to someone from the CFPB at a recent conference that stated that even if the property wasn't a dwelling (i.e. transitory) that it would still be reportable if it was a purchase/refi/HI for an "investment property." He also said it was a grey area and that it would be case by case. I think that's bonkers. If something isn't secured by a dwelling, then it isn't reportable. If that's not true, then I quit.

Also not really sure how we are supposed to verify what the property was used for at closing. Nobody is generally collecting that information. They want to know what their collateral is going to be used for during the loan.

I've also got a hotel that is being purchased to be used for affordable housing. Is that not a dwelling?

Interesting IR. Just more evidence of how convoluted they've let this get, and how little meaningful guidance is out there. I really think we (compliance professionals) put more thought into this than examiners do....that's been my experience anyway. I've never really had to have any of these kinds of conversations with them. For example--when i'm in the HMDA portion of a compliance exam, it has never involved any dive into loans/appliations that ARE NOT on my LAR--what i'm saying is if i excluded from my LAR as transitory housing, or temporary financing, or any other exemption, there has not been any sort of eyes on that and looking at my excluded transactions to see if i mistakenly left stuff off of my LAR.

it has never involved any dive into loans/appliations that ARE NOT on my LAR

You have been lucky. Every data integrity exam I have been through they have asked for non-originated applications and usually ask for 3-5 non originated commercial loans to be included.

I still haven't heard from George. When I call the number he left I get their automated answering service with that long winded message. I am about to give up on him.

Dan, they look at non-originated applications that are on my LAR, but they have yet to ask for non-originated applications that are not on my LAR.

Rant: We spend almost as much time scrubbing the ~100 Commercial applications on our LAR than we do the thousands of consumer mortgage applications we have, and there has been exactly 1 commercial application picked for review in the past 5 years of data integrity audits, and they have never asked for any commercial files that weren't on our LAR. A large amount of the time is spent digging through files that were not marked for HMDA and adding them back into the LAR and collecting all the data points. I have to convince myself every quarter that this process is worth it to get the LAR right, but it's hard sometimes.

Can we please write a rule to remove commercial applications from HMDA? This would assumedly make them 1071 reportable, and make everyone's lives a lot easier. (Well everyone in compliance)

Inherent_Risk BRILLIANT!!

And to add another twist, often airbnb/vrbo properties are used as a vacation home by the owner for part of the year. Does that make them second residences instead of investment properties?

3. Second residences. Section 1003.4(a)(6) requires a financial institution to identify whether the property to which the loan or application relates is or will be used as a second residence. For purposes of § 1003.4(a)(6), a property is a second residence of an applicant or borrower if the property is or will be occupied by the applicant or borrower for a portion of the year and is not the applicant's or borrower's principal residence. For example, if a person purchases a property, occupies the property for a portion of the year, and rents the property for the remainder of the year, the property is a second residence for purposes of § 1003.4(a)(6). Similarly, if a couple occupies a property near their place of employment on weekdays, but the couple returns to their principal residence on weekends, the property near the couple's place of employment is a second residence for purposes of § 1003.4(a)(6).

I have not heard back from George.

Based on the information Raitchjay received I am proposing the following for our shop.

If the property is already being used as an AirBnb then we will exclude it as transitory providing the borrower will not reside in it at anytime as a vacation home. If they do then it will be treated as a dwelling and reported as an investment property.

If the property is not currently being used as an AirBnb and will be converted to one upon purchase then it will be treated as a dwelling and reported as a home purchase.

Dan, i'm thinking "If the property is already being used as an AirBnb then we will exclude it as transitory providing the borrower will not reside in it at anytime as a vacation home. If they do then it will be treated as a dwelling and reported as an investment property", i believe it would need to be reported as a secondary residence. You agree?

As for "If the property is not currently being used as an AirBnb and will be converted to one upon purchase then it will be treated as a dwelling and reported as a home purchase", i believe what Alexis at the CFPB said to me would make me still lean toward not reporting, since an AirBnb would seem to qualify as transitory housing and be exempt.

But it's late in the day--i might be missing something.

Oops...i just found my mistake......the "snapshot" or whatever it's called idea would mean that your 2nd scenario is a current dwelling that's being converted to transitory, and would report what it is at orgination. Please amend my 2nd response.

ETA: so long as the purchase is of a current "dwelling".

i believe it would need to be reported as a secondary residence. You agree?

Yes.

That's my reading too.