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#482201 - 01/13/06 10:55 PM
Re: HMDA Temporary Financing Cave In
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Diamond Poster
Joined: Mar 2003
Posts: 1,035
OK
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We were instructed to go back and include the splash and cash loans for 2005 but if I have to include all of the construction loans that were to builders I will croak! That is about all of the loan business one of our branches does!!
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#482203 - 01/17/06 03:25 PM
Re: HMDA Temporary Financing Cave In
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Diamond Poster
Joined: Aug 2003
Posts: 1,264
Southeast
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I just received this from our field office of the OCC -
This is a statement from our policy group:
"Bottom line is that the bank must look at the nature of the loan, and not the length of time it will hold the loan, in order to determine if the loan is temporary. Temporary financing essentially depends on whether the loan is to be repaid from proceeds of a loan from another lender or source (i.e., sale of the property or some other source of funds, like an insurance settlement) other than the borrower's income. Bridge loans typically fall into this category as they generally facilitate moving a borrower from one property to another and while neither is defined, the general sense of the commentary to the regulation seems to be if it's not permanent, it's temporary."
The key here is that a permanent loan is typically paid from the borrower's income. There are no hard and fast rules, but I think this is a good rule of thumb. Your examples revolve around loans that are short term and expected to be paid in full in from sources other than borrower income.
..........................................
This is what we have been doing in the past and sounds like what most of you out there have understood the definition to be, but it is contrary to what opinions in this POST have said regarding the FFIEC FAQ.
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#482205 - 01/17/06 03:51 PM
Re: HMDA Temporary Financing Cave In
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Diamond Poster
Joined: Aug 2003
Posts: 1,264
Southeast
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I didn't mention the KC opinion, but after a re-read of the FFIEC FAQ's, this is what I came up with to defend the policy statement from the OCC:
From the FAQ, pay special attention to the following statement, "For example, “A lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h). “
The resale of property bought by an investor (in that line of work) would be oridinary income for the investor and therefore reportable. However, that doesn't mean that ALL loans of this type are made to an investor. If not in that line of work, then not ordinary income.
At least that is the way I now read it and am sticking with that since I have written confirmation from the field office in agreement. That is, until someone comes and kocks my sticky off - which I'm sure will happen sooner or later!
Last edited by Shopgirl; 01/17/06 04:02 PM.
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#482206 - 01/17/06 04:07 PM
Re: HMDA Temporary Financing Cave In
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Diamond Poster
Joined: Nov 2005
Posts: 1,032
Midwest
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Dan-
You state an effective date of 1-1-6. Does this mean that we don't have to go back and correct 2005 HMDA information.
Where is this date coming from. I might add, we are OTS regulated, if that makes a difference. Thanks
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#482208 - 01/17/06 04:15 PM
Re: HMDA Temporary Financing Cave In
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10K Club
Joined: Jul 2003
Posts: 17,413
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Quote:
...under the new misguidance...
 Good one, Dan! 
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#482210 - 01/19/06 03:35 PM
Re: HMDA Temporary Financing Cave In
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Platinum Poster
Joined: Jan 2004
Posts: 968
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Quote:
Quote:
This is going to the KC FDIC. I will let you know what I hear if you are interested.
 They're the ones who started this whole mess with their "splash and dash" letter.  But, yes we would be very interested in the reply you get.
I finally got a response & they told me they are going with the information below they received from HMDA Help:
An institution that is questioning whether an application/loan is
'temporary' needs to look at all the factors closely. Each loan in
question should be looked at on a case-by-case basis. Because the maturity
is short-term does not necessarily mean it is 'temporary'. Temporary
financing is not intended to be a permanent arrangement; it's a stop gap.
Or it's a 'patch' (like a bridge loan) that gets you to the next loan,
which is usually permanent financing. Any applications/loans that function
like construction loans or bridge loans should be treated as temporary.
Therefore, you would treat builder speculative construction loans as
temporary because the loan is never replaced with permanent financing. If
an institution originates a loan to the applicant and the institution and
applicant know/expect the loan has to be replaced by permanent financing,
then the initial, originated loan is temporary.
They said the real key is to look and each loan on a case-by-case basis and do not consider term.
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#482214 - 01/19/06 05:16 PM
Re: HMDA Temporary Financing Cave In
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Power Poster
Joined: Sep 2004
Posts: 4,241
middle of the country
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Therefore, you would treat builder speculative construction loans as temporary because the loan is never replaced with permanent financing.
Do these people even know what they are talking about? In one breath they say temporary financing is financing intended to be replaced by permanent financing and in the next they say a speculative construction loan is temporary because the loan is never replaced by permanent financing!!
How much more confusing can they make it?
A thought on the builder speculative construction financing - the builder would be unlikely to obtain the permanent financing for the home he/she built, the buyer of that home would obtain the permanent financing. This may be the thought process of the HMDA help staff.
_________________________
Treading water in a hurricane
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#482216 - 01/19/06 05:51 PM
Re: HMDA Temporary Financing Cave In
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Power Poster
Joined: Sep 2004
Posts: 4,241
middle of the country
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I have a HMDA headache now!!!!!!!!!!!!!!
_________________________
Treading water in a hurricane
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#482217 - 01/19/06 06:04 PM
Re: HMDA Temporary Financing Cave In
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Platinum Poster
Joined: Jan 2004
Posts: 968
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Quote:
But that's no different from a fix and flip. I think they are trying so hard to make the original FAQ make sense that they are just digging themselves deeper.
The only thing I can think of here is that a fix & flip is still a home purchase, which I guess was sort of the original intent of HMDA. A construction loan is a purchase of bare ground only & then construction. The permenant financing would be the purchase for HMDA. 
I feel the need to rationalize their thinking somehow or I am going to be in for one long, ugly exam!!
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#482218 - 01/19/06 07:36 PM
Re: HMDA Temporary Financing Cave In
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100 Club
Joined: Mar 2005
Posts: 126
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Quote:
A thought on the builder speculative construction financing - the builder would be unlikely to obtain the permanent financing for the home he/she built, the buyer of that home would obtain the permanent financing. This may be the thought process of the HMDA help staff.
This was the arguement I presented to our examiners, they still argued that the construction only loan was still permanent financing for the builder, and yes they did admit that the house/loan would be "double counted".
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#482220 - 01/19/06 10:30 PM
Re: HMDA Temporary Financing Cave In
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Power Poster
Joined: Jun 2001
Posts: 8,272
Where the heart is
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Quote:
Okay - BOLers - since the Regulatory agencies seem either unwilling or unable to define "Temporary" financing, why don't WE do it and submit it to the agencies?
How about we start with:
1. Temporary financing includes any loan for the initial construction of a dwelling.
2. Temporary financing is any loan, regardless of purpose, that is secured by a dwelling but where the loan is made on the premise that the repayment will NOT come from the ordinary income or revenue of the borrower, but will come from either the sale of the property or from financing that will be repaid by ordinary income or revenue of the borrower.
Post your comments, additions, revisions, etc, and let's COME UP WITH a solid definition for "Temporary" financing and see if we can get the regulatory agencies to consider it.
Bumping this up - anyone want to comment?
_________________________
CRCM,CAMS
Regulations are a poor substitute for ethics.
Just sayin'
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#482221 - 01/20/06 02:09 PM
Re: HMDA Temporary Financing Cave In
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Power Poster
Joined: Jul 2002
Posts: 5,568
New Jersey
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Bonnie, those definitions look good to me. They are both logical and comprehensible. You'll never make it as a bureaucrat.
_________________________
Management is doing things right; leadership is doing the right things. Peter Drucker
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