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I have a company that requested a loan for the purpose of making home improvements to an investment property in Mexico and is being secured by a property in the US. On HMDA regulation, a business purpose test is a loan must be dwelling secured and for the purpose of Home Purchase, Home Improvements, or refinancings. For this loan, would this loan be considered HMDA reportable? Since the purpose the loan is for Home improvements and its being secured by a dwelling even though the Home improvements are for a home located in Mexico.
This loan is considered not HMDA reportable because you are to report the address where the home improvements are being made. Interestingly, if it was a purchase or a cash out refinance you would have to report because the collateral is the home in the US. Another little caveat if they had not told you the funds for the home improvement were for the property in Mexico you have had to report.
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The loan wouldn’t be reportable even if the data collection guide says to report the property address securing the home and the home securing this loan is in the US.
§ 1003.4 COMPILATION OF REPORTABLE DATA.
9) The following information about the location of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan:
(i) The property address; and
(ii) If the property is located in an MSA or MD in which the financial institution has a home or branch office, or if the institution is subject to paragraph (e) of this section, the location of the property by:
(A) State;
(B) County; and
(C) Census tract if the property is located in a county with a population of more than 30,000 according to the most recent decennial census conducted by the U.S. Census Bureau.Paragraph 4(a)(9)
1. Multiple properties with one property taken as security. If a covered loan is related to more than one property, but only one property is taken as security (or, in the case of an application, proposed to be taken as security), a financial institution reports the information required by § 1003.4(a)(9) for the property taken as or proposed to be taken as security. A financial institution does not report the information required by § 1003.4(a)(9) for the property or properties related to the loan that are not taken as or proposed to be taken as security. For example, if a covered loan is secured by property A, and the proceeds are used to purchase or rehabilitate (or to refinance home purchase or home improvement loans related to) property B, the institution reports the information required by §1003.4(a)(9) for property A and does not report the information required by § 1003.4(a)(9) for property B.My response was related to the definition of a dwelling. The home improvements being done on a property outside of the US do not count as a dwelling. So the transaction is not IMO, a home improvement.
Scope § 1003.1(c)
Regulation C:
• Applies to financial institutions as defined in § 1003.2(g).
• Requires a financial institution to:
*Submit data to the appropriate Federal agency for the financial institution as defined in § 1003.5(a)(4); and
*Disclose certain data to the public, about covered loans for which the financial institution receives applications, or that it originates or purchases, and that are secured by a dwelling located in a State of the
United States of America, the District of Columbia, or the Commonwealth of Puerto Rico.Since the property being improved on is not in the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. It does not fall into the “dwelling” category.
The regulation does allow for voluntary reporting, so if a business decision is made to report this on the HMDA LAR, you can report it. However, the property being improved is not a “dwelling” for HMDA purposes and this is a business loan. Which has allowable exemptions.
To verify – the original loan is not being refinanced? But just using equity where is will be like a second lien?
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No, the original loan is not being refinanced. The customer owns the property and has no liens on the property. Customer is getting equity from the US property to make the home improvements to the mexico property.
Okay, then if I’m understanding from the original question this is a business purpose/commercial loan. Commercial loans only get recorded on the LAR if the dwelling is for purchase, refinance or home improvement. To be a dwelling for HMDA the property has to be in the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. Since none of the improvements are going to the property in the US, IMO, I would not put it on my LAR, because from the commercial requirements it doesn’t meet the purpose of when you do file.
However, if you feel it needs to be reported. They do allow for voluntary reporting. Another option would be to contact the HMDA Help desk at: HMDAHelp@cfpb.gov.
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