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#2306325 - 02/20/25 07:45 PM
HMDA Builder Exclusion
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New Poster
Joined: Dec 2016
Posts: 2
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Has anyone run across commercial construction only loans to a builder to construct a dwelling to resale, but proceeds will also be used for additional items such as non-dwelling structures. Will the addition of these structures lose the builder exclusion since proceeds are not exclusive for the dwelling to be resold? The scenarios I have ran across are a construction loan for a dwelling, garage, ADU & barn/shop that will be sold and paid off with proceeds of the loan. We also have a mixed-use property with individual apartments that will be sold, but it also includes commercial/ retail space. Since the proceeds of both of these are not exclusively to build a dwelling for resale, I think they need to report, but we are getting pushback from our commercial team so would like to hear other opinions on this. Thank you.
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#2306326 - 02/20/25 08:01 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Aug 2002
Posts: 47,886
Bloomington, IN
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The scenarios I have ran across are a construction loan for a dwelling, garage, ADU & barn/shop that will be sold and paid off with proceeds of the loan.
Assuming the garage, ADU & barn/shop are all part of the construction projects and will be outbuildings to the dwelling then IMO this would still qualify for the exemption. However if the outbuildings are not part of the project and will not be sold with the dwelling then my opinion would be they do not qualify for the exemption.
We also have a mixed-use property with individual apartments that will be sold, but it also includes commercial/ retail space.
You need to go the guidance for mixed use properties and determine if these qualify as dwellings. But even so I do not think it would qualify for the exemption due to the retail space.
Concurring or opposing opinions welcomed.
BTW, welcome to the threads Rita.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2306329 - 02/20/25 08:43 PM
Re: HMDA Builder Exclusion
Rita Young
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Power Poster
Joined: Aug 2001
Posts: 7,390
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Would someone define the term "builder exclusion" as this term is not in the regulation.
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The more you sweat in training, the less you bleed in battle.......
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#2306331 - 02/20/25 08:56 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Aug 2002
Posts: 47,886
Bloomington, IN
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Would someone define the term "builder exclusion" as this term is not in the regulation.
2. Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#2306332 - 02/20/25 08:57 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Jul 2001
Posts: 85,443
Galveston, TX
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They are referring to this:
2(j) Home Purchase Loan
3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2306335 - 02/20/25 09:12 PM
Re: HMDA Builder Exclusion
swiggles
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Power Poster
Joined: Sep 2010
Posts: 2,707
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Would someone define the term "builder exclusion" as this term is not in the regulation. In addition to the citations above, the CFPB provided a bit more clarification on builder loans in the HMDA FAQs. Look at Q&As 1&2 in the Construction and Construction/Permanent Transactions section of the CFPB's FAQs here: https://www.consumerfinance.gov/com...ments/home-mortgage-disclosure-act-faqs/
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Adam Witmer, CRCM All statements are my opinion, not those of my employer, and should not be taken as legal advice. www.compliancecohort.com
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#2306355 - 02/21/25 03:40 PM
Re: HMDA Builder Exclusion
Rita Young
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Power Poster
Joined: Aug 2001
Posts: 7,390
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The guy in charge of HMDA reporting at my bank says that if the borrower is not the actual contracted builder, but rather is hiring one to build the house, that the loan is reportable....because the borrower is not the builder. I don't see where the regulation or the FAQ state that. Additionally, he says that if the loan is in the name of an individual (not an entity), the loan is reportable.
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The more you sweat in training, the less you bleed in battle.......
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#2306358 - 02/21/25 03:55 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Jul 2001
Posts: 85,443
Galveston, TX
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I suggest you find a new "guy" to be in charge of HMDA reporting. Builder is not even mentioned, although usually you are talking about a situation that involves a builder. It just comes down to "extended to a person exclusively to construct a dwelling for sale".
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2306364 - 02/21/25 04:34 PM
Re: HMDA Builder Exclusion
Rita Young
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Power Poster
Joined: Aug 2001
Posts: 7,390
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I've challenged him to no avail. I guess it will take audit or exam findings to convince him.
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The more you sweat in training, the less you bleed in battle.......
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#2306374 - 02/21/25 06:02 PM
Re: HMDA Builder Exclusion
Rita Young
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New Poster
Joined: Dec 2016
Posts: 2
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Appreciate the feedback everyone.
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#2306377 - 02/21/25 06:19 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Aug 2002
Posts: 47,886
Bloomington, IN
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The guy in charge of HMDA reporting at my bank says that if the borrower is not the actual contracted builder, but rather is hiring one to build the house, that the loan is reportable....because the borrower is not the builder.
I actually agree with this. The loan is not to a person to construct a dwelling for sale. The loan is to a person to hire another person to construct a dwelling for sale. The reg says exclusively to construct, not to have constructed. Additionally, he says that if the loan is in the name of an individual (not an entity), the loan is reportable.
This I do not agree with. The regulation states to a person, not to a non-natural person.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#2306378 - 02/21/25 06:35 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Jul 2001
Posts: 85,443
Galveston, TX
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So, I construct homes for sale for a living. I don't actually build them myself, my friend Joe who is a contractor and has a crew builds them for me.
Dan, are you saying that is not a loan "extended to a person exclusively to construct a dwelling for sale"? Am I not having a dwelling for sale constructed? Where does it say I have to be building it myself?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2306386 - 02/21/25 08:09 PM
Re: HMDA Builder Exclusion
Rita Young
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Power Poster
Joined: Aug 2001
Posts: 7,390
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The Compliance officer mentioned that he has been to trainings conducted by Kathleen Blanchard....he didn't say that was her opinion. Does she still visit BOL?
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The more you sweat in training, the less you bleed in battle.......
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#2306389 - 02/21/25 08:24 PM
Re: HMDA Builder Exclusion
swiggles
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Joined: Aug 2001
Posts: 7,390
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2. Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person,..... and the purpose is..... exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.
How about some sentence restructuring?
A loan made to a person, and the loan is to build a dwelling for resale, is exempt.
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The more you sweat in training, the less you bleed in battle.......
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#2306404 - 02/21/25 09:23 PM
Re: HMDA Builder Exclusion
Rita Young
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Platinum Poster
Joined: Jan 2017
Posts: 718
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I do not think it matters how many hands the money goes through to get to its purpose. If it's exclusively for the purpose of constructing a dwelling for sale, then it's exempt. The borrower almost certainly contracts out at least parts of the construction in just about any spec home situation. I don't know why that would matter. "Exclusively" is the tricky part.
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#2306408 - 02/21/25 09:38 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Aug 2002
Posts: 47,886
Bloomington, IN
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Randy, IMO, and I want to emphasize my opinion, if the person obtaining the loan is not involved either as the builder or the general contractor then the loan is not to the person for the person to construct the dwelling. As I said above the reg states "to a person exclusively to construct a dwelling for sale", it does not say"to a person exclusively to have a dwelling constructed for sale".
So, I construct homes for sale for a living. I don't actually build them myself, my friend Joe who is a contractor and has a crew builds them for me.
In this scenario, since you do this for a living, I would consider you the general contractor and Joe a subcontractor. I would treat it as any other loan made to a construction company using several crews to construct homes for sale.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#2306410 - 02/21/25 09:49 PM
Re: HMDA Builder Exclusion
swiggles
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Power Poster
Joined: Oct 2009
Posts: 9,381
OK
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The guy in charge of HMDA reporting at my bank says that if the borrower is not the actual contracted builder, but rather is hiring one to build the house, that the loan is reportable....because the borrower is not the builder. I don't see where the regulation or the FAQ state that. Additionally, he says that if the loan is in the name of an individual (not an entity), the loan is reportable. What person who isn't a builder or contractor is going to get a loan to construct a spec home? Are we talking about a person who gifts funds to someone else so they can build a spec home? Can't really imagine that. And it goes without saying that if a person gets a loan to pay a builder to build the house that the borrower will move in to upon completion, then it isn't a spec home constructed as a "dwelling for sale".
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#2306411 - 02/21/25 09:58 PM
Re: HMDA Builder Exclusion
Rita Young
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10K Club
Joined: Jul 2001
Posts: 85,443
Galveston, TX
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I would not be the general contractor. I would have a contract with Joe, who would be the general contractor to build me a home specifically for sale. I think there is too much emphasis being placed on a mere word. If the loan is to an individual and that loan is funding the construction of a dwelling specifically for sale, I fail to see why who is actually hammering the nails makes any difference.
There is no gift of funds here - no more than having a general contractor build a primary residence.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2306412 - 02/21/25 10:01 PM
Re: HMDA Builder Exclusion
Rita Young
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Power Poster
Joined: Oct 2009
Posts: 9,381
OK
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Randy, i agree with you. I was just trying to imagine some scenario where a disinterested party would somehow get a loan for $500,000 so that they could hand that money to party B and say "here's some money for you to build a spec home, that i impart to you as a gift". Implausible, i agree. Was just trying to make the point that disinterested parties don't get loans so that other people can build spec homes.
Last edited by raitchjay; 02/21/25 10:03 PM.
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#2306413 - 02/21/25 10:05 PM
Re: HMDA Builder Exclusion
Rita Young
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Power Poster
Joined: Aug 2001
Posts: 7,390
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I still maintain, that the regulation means that a loan that is "exclusively to construct a dwelling for resale" is exempt. Many of our loans for the purpose of constructing speculative homes or sold homes are made to individuals or business entities who then pay a licensed builder to do the work and then the individual or business entity reaps the rewards when the home sells. It's a money-making venture for those who can qualify for such loans but do not have the knowledge, expertise or licensing and insurance to do it themselves. Sometimes, these borrowers buy residential lots, hold the lots for a while and then hire a builder to construct homes on the lots. I can't really see the difference with respect to the method. Both are to build homes for resale. I know that regulations often do not make sense, but why would a line be drawn, for same-purpose loans just because one borrower is an actual licensed builder and the other is not?
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The more you sweat in training, the less you bleed in battle.......
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