That guidance pretty well falls within the Board's interpretation.

I get this really strange tic in my left side every time I read this thread. I think I am beginning to suffer permanent brain damage.

Our OCC Examiner-In-Charge is relying on Fed Guidance that was provided to Karen Tucker (OCC Compliance Specialist). It clearly says Spec Construction is not automatically exempted. To wit:

"Regarding the spec homes or investment properties -- The intent is not to exclude loans to purchase a home from the HMDA report where the borrower does not intend to live, such as a spec home or investment home. The institution needs to look at all the factors/information in the application or loan and determine whether it is temporary and not simply base the decision on the fact that the home is a spec home, investment home, or the borrower does not intend to live in it."

Given this Fed opinion, I can not see away aroud reporting these(sigh).

I can...that is clearly a contradiction of the wording itself..construction loans are exempt.

The verbiage "spec home or investment home" can have different meanings...yes, most builder construction loans are "speculative"..however a "spec" loan could also refer to speculation on investment purchases which would not be exempt.

Now the room is beginning to spinnnnnnn.

Q: When is Temporary financing not temporary financing?


A: When it isn't.

FWIW - I agree with Joker, I don't believe the OCC was referring to "spec" in the construction sense. I think is was in reference to a speculative investment loan, such as a "splash and dash".

Okay, given all that has been said, how do you view the following scenario?

Bridge Loan: Client takes out a 1yr term equity loan, against property A to help them buy property B a new home for all cash. No permanent financing on prop B.

The source of repayment for the 1yr term bridge loan is the sale of property A.

My take is it is not reportable. Any feedback?
Thanks!

A "bridge loan" is specifically exempt under the regulation. Although the logic of the new Q&A (no permanent financing would disqualify it) I still think it qualifies for the bridge loan exemption.

I agree. Not reported - bridge loan = temporary financing exemption.

I also agree.

I'm trying to make sense of this and try to simplfy it for our loan ofifcers. Don't know if that's possible. Would this statement adhere to their intent of the guidance?

Temporary financing under HMDA is:
* an interest only or single pay loan that is intended to be paid off by the issuance of another loan to the same borrower,
* a construction loan, or
* a bridge loan

Yea or Nay?

I can go along with that Carolina Blue. Can you give me an example of a loan that meets the first criteria that isn't a construction or bridge loan?

Also, you may want to clearly define "construction" and "bridge" loans for your loan officers. Some try to call a home improvement loan a construction loan. I also like to say "you construct a dwelling once, you improve it from then on."

I think part of the confusion over the "Spash and Dash" loans are that, as far as your Call Reporting is concerned, those loans ARE considered construction loans and reported on RC-C Part I Line 1a.

So you have one regulation calling them "construction" loans, and another regulation that says they aren't construction loans.

And yet, the Call Report definitions are what we must follow for defining a CRA Small Business loan!

Seriously - I think we have a Board Game in the making here......

Bonnie, Why would you consider "Splash and Dash" construction? If I do a gut rehab on my house or part of my house, it is home improvement. I would think the same would be true for these. We are lending to someone to do home improvement on a current dwelling. They are not tearing the place down and building something new.

Besides, since we are lending to purchase, the home improvement/construction part doesn't come into play. While I may not agree that they are not temporary financing, the argument that because they are paid from the ordinary income of the borrower (the sale of the house) does make some sense in not classifying them as temporary.

I just got off the phone with my OCC examiner....here's the scoop. The Fed Reserve should be putting something out very soon. Hopefully it will help but based on what I was told I doubt it.

Secnario 1: Interim Construction Loan - spec house - borrower is the builder- borrower sells the home at completion. Loan paid off by buyer's mortgage company. Loan is HMDA reportable as the sale of the home is income to the builder therefore it is NOT temporary financing.

Scenario 2: consumer interim construction loan - personal residence - funds used to payoff interim is permanent financing from outside source - temp financing not reportable. If paid from current bank loan then the perm would be HMDA reportable but the interim would be considered temp financing.

What a mess....hopefully we will have something from the Fed Reserve that will put us all on the same page instead of different pages...

So, pardon any confusion, they are telling you that spec construction loans ARE reportable? If that is correct, this is going to create a gigantic mess at our institution! And is that what HMDA Data is really supposed to include??

And WHY do they always do this stuff mid-year???

I think the problem comes from misunderstanding what “construction” and “bridge” loans are. You see, a common misconception is that a loan where the funds are used to build a house is a construction loan. This is simply not true. You see, intrinsic to the definition of both “construction” and “bridge” is that they will be replaced by permanent financing. That’s why Reg. C uses “construction” and “bridge” loans as examples of temporary financing, because very clearly “These examples indicate that financing is temporary if it is designed to be replaced with financing of a much longer term.”

We silly bankers would be a lot less confused if we stopped clinging to ridiculous definitions that include any loan to construct a building as a construction loan, when this is clearly not the case.

Now if you’ll excuse me, I need to go add a couple of shots of Jaeger Meister to my tea so that I can make it through the afternoon.

Jaeger: I don't agree. Reg C is NOT new. It's been around for over 15 years. We've been excluding construction loan (ALL of them) for over 15 years. No where have the regulators ever said that construction had to be followed by permanent financing to be excluded.

What is says is construction and bridge loans are examples of temporary financing. They are excluded. There could be other types of temporary financing if the loan was followed by permanent financing.

Quote:

---

Scenario 1: Interim Construction Loan - spec house - borrower is the builder- borrower sells the home at completion. Loan paid off by buyer's mortgage company. Loan is HMDA reportable as the sale of the home is income to the builder therefore it is NOT temporary financing.

---

This is not consistent with anything we have heard in the past. No where does Reg C say a loan is not temporary if it is repaid from ordinary income. I have said that it is a good rule of thumb, but not a requirement. I have talked with numerous examiners on Spec. Homes and (so far) haven't had one say they are covered.

I encourage you to fight this until something official is issued.

So what does the Fed intend banks to do that finance housing tract financing for builders such as Centex, Griffin, S&S, Benchmark, and so on?

Afterall, those builders rely on the SALE of the homes for their revenue/income - so following this new "logic", tract construction financing is now HMDA reportable. Can you imagine a $56Million Purchase Loan for a 1-4 family dwelling with "N/A" for all of the GMI fields?

And if someone says "Well this doesn't include "Builders", then when do we arrive at the threshold? If the Builder builds more than 5 houses a year? 10 houses? 40 houses?

a question in regards to the temporary financing. Does one collect the monitoring information if it's a home purchase loan (investment property) if it is temporary financing?

So has this thought process been officially issed by the FED, or is this something that is being considered?

David,
I was trying to ooze with sarcasim. Maybe that wasn't coming through. I agree that reporting spec construction is totally inconsistant with what what Reg. C says.

The logic of the Q&A is that somehow intrinsic in the definition of construction and bridge financing is that more financing will follow. I have no idea where they are getting this, but that's the only logical way I can find to read the Q&A. It makes no sense with what the reg says, but we've nevertheless changed our policy so that we report any construction or bridge loan that isn't being replaced by long term financing.