[amarie1126]

If a lender does a construction only loan for 12 months and at the end of the 12 months decides to take the loan in-house permanently by doing a change in terms (not satisfying or replacing the existing debt, therefore no new credit is being extended) is the change in terms HMDA at that point or is not hmda since no new credit is being extended?
My question stems from the below description:
In general, extension of credit under § 1003.2(d) refers to the granting of credit only pursuant to a new debt obligation. Thus, except as described in comments 2(d)-2.i and .ii, if a transaction modifies, renews, extends, or amends the terms of an existing debt obligation, but the existing debt obligation is not satisfied and replaced, the transaction is not a closed-end mortgage loan under § 1003.2(d) because there has been no new extension of credit.

[kowsley]

A construction only transaction is typically exempt for HMDA purposes as temporary financing. If the original construction only transaction is not replaced by a new debt obligation and is only a modification of the original terms it is not considered a new extension of credit and would not be considered a closed-end mortgage loan for HMDA purposes.

That being said, I would strongly advise against modifying a construction only transaction into a permanent transaction. A refinance is the preferred method for moving a transaction from the construction phase to the permanent phase. A modification agreement may not have the proper language needed to support the bank’s interest in the transaction and/or collateral. If the bank makes it a practice of modifying construction loans into permanent financing, I would recommend consulting an attorney to verify the process does not constitute a refinance.

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