[TheBank]

If a commercial loan is made to refinance a building that is the borrowers’ dwelling and also has a floor used for housing retreats for business or groups, would the HMDA occupancy code be a 1 primary residence or 3 investment property? It seems that the building is both a code 1 and a code 3, but I do not see where there is a hierarchy for this. It’s one building not multiple buildings. Would we code the loan as an occupany code 1 primary residence since that is the borrower’s residence, or would we use code 3 investment since the loan is a business purpose loan?

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[jholzknecht]

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).

Since your borrower occupies the property, use Code 1 primary residence.

[Author]

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