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Borrowers came in and used their current home as collateral to purchase a new home that will be their primary residence. They then came in about a month later and said the contractor for the new house was wanting more money (and they hadn’t sold their old house) and they needed more. We paid off the first loan and combined it with the new money. Do both loans go on the LAR as purchases? Both were put on longer term financing because the borrowers were afraid their current home would take a while to sell. It seems like we would be putting the same loan on twice just with different loan amounts…
The first loan seems to fit the definition of a “home purchase,” but may be exempt as a bridge. The second loan loan appears to meet the definition of a “refinance,” but again it may be a bridge loan. You mention long-term financing, which reduces the likelihood that either loan is a bridge loan. You also mention a contractor.
We need a little more information here.
What is the term of each loan?
Is either loan used for construction?
What is the nticiated payout – monthly payments or proceeds of the sale of the current home?
The first loan was set up as a 3 year balloon
Second loan was set up as a 1 year balloon
They are on monthly principal and interest payments.
I misunderstood, there is no contractor, the home being purchased is already there, not construction.
The anticipated pay out is the sale of their existing home, but the borrowers felt more comfortable to go ahead an make payments on the loan, rather than interest only.
Are you still thinking purchase on the first one and refinance on the second?
What an interesting situation. I’ve literally read this a few times just to get a decent grasp on it.
This is strictly information that is MY Opinion. I do know HMDA quite well but this is a situation where I don’t even think you’d find it in the GIR.
1st loan – HMDA reportable. – PURCHASE – Although Bridge loans are exempt, they’re exempt because they’re temp financing. This one is a long term loan.
2nd loan – You said you paid off the original loan and added new money. Therefore, I’m assuming (bad idea right?) that you have a new note and new D/T. – HMDA Reportable REFI. I know this is only a 12 month loan and usually those are temp and exempt but the repayment method you show is only a short term loan. (I think, Jack you may need to assist here.)
So, that’s my opinion. I’d love to hear what anyone else has to say. 😐
The loan officer tells me the current house (the one being used as collateral) has sold and will close this month and this loan will most likely be paid off this month, so both loans will happen to be short term even though they weren’t set up that way. I was thinking report only the second one as a purchase because essentially they are using all the funds from the second loan to purchase the other home…then not report the first at all….
I’d still report both, regardless if it’s about to pay off. If the 2nd loan purpose was refi + purchase then yes, I’d report it as a purchase. Check in the GIR about multipurposed loans and how to report them.
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