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You stated earlier, “The Officer does all the normal required underwriting (updating financial information, collecting income, etc.) to refinance the debt…,” so it sounds like both income and DTI were considered in the credit decision (thus reported). Whether or not he would have done the loan anyways is immaterial. As you stated, “the officer gathered the information and figured their DTI.” I am curious though…was a policy exception approved for the DTI that was higher than policy allows? I am sure what he is doing and why is adequate justification (as it seems you run across it often enough). However, it does seem like it would be best practice to create a policy or add to your current policies instructions on how your institution will address these circumstances consistently…which would then require no policy exception…or at least provide an acceptable consistent universal justification.
Because they are NOT reported on the RC-C (Loans and Leases) section of the bank’s Call Report (No, they are not 4a’s), they are not reported on the CRA LR. Although, they can be presented separately to examiners for CRA credit consideration. Letters of Credit are to be reported on another section of the Call Report (I believe the RC-L). Now if a loan was ever created to fulfill the promise represented by the Letter of Credit, then that loan may be reportable itself…but once again, while a Letter of Credit is a legal document, it is not itself a loan, regardless of the process and coding a bank decides to create for it. In which case, have your filters ready.
Loan #1 – Bridge Loan? Is this basically a short-term cash-out refinance of their primary to purchase another home? If so, doesn’t seem like a bridge loan…guess I may need more facts?
Loan #2 – You are on the right track. I feel this should be classified as a HMDA reportable investment (at least in most cases) Is this loan being sold to the secondary market? If so, how would they classify it for the transaction? Are they living in the home for any period of time AFTER the transaction?
Well, we know that the construction only loan was not HMDA reportable, so are you saying that we are now paying off that loan with permanent financing plus adding funds to complete construction and add a pool? If this is permanent financing (possibly some sort of 1x close to complete construction, not just pool), you will just select the highest on the pecking order for this multiple purposed new loan…which would be a purchase…that’s if my interpretation of the facts are correct.
Good Afternoon,
What you have seems to come directly from the CRA File Specs document. Do you have that file document to present to your vendor to correct their thinking? It is not unusual for a vendor to be incorrect. A good vendor will see the regulatory document in front of them and correct themselves accordingly. Hopefully, you are working with a “good vendor.” 🙂
01 = Small Business Loan
02 = Small Farm Loan
OPTIONAL LOAN TYPES:
03 = Other Lines/Loans for Purposes of
Small Business
05 = Motor Vehicle
06 = Credit Card
07 = Other Secured Consumer Loans
08 = Other Unsecured Consumer Loans
09 = Other Loan DataWhile it is clear if all these properties will be involved in separate loans specific to themselves, are you saying this will be 1 transaction involving and collateralized by all 9 properties together? If the latter, are you saying they are refinancing 8 properties and purchasing 1? If so, and this is a multi-purposed transaction, 1-Purchase is higher on the pecking order than 31/32-Refinance. My answer can’t be 100% definitive as the facts are 100% clear. I hope this helps.
Do your policies allow for the consideration of business income in the place of personal income? Are they referencing a line item on the business tax return stating that is the applicant’s personal income? What does your Chief Credit Officer or one from their team say on this? What is the specific purpose of the loan as I am sure the collateral is a residential dwelling? Is the applicant a builder and this is related to their business and not themselves personally? Am I correct when I say the subject loan is NOT construction-only? Your inquiry is loaded and with a lot of unknown variables.
While it is helpful to document reasons for withdrawal, it is not required that the applicant provide you the reason for their withdrawal. We do find it helpful and reasonable to document the method and make the copy of the expressed withdrawal part of the adverse action file when it is written. Otherwise, documenting the expressed withdrawal and method within the app notes should suffice. The officer may want to document how the conversation went when verbal, but I can see limitations being placed on the officer when it comes to the degree with which they press for reasons as one doesn’t want to burn bridges with customers or prospective customers. Also, sometimes pressing to provide reasons might be seen as a violation of the applicants’ privacy (Ex. medical).
This appears to be used more as an extension of the home and, at best, transitory in nature (used periodically by visitors/family). I would be more inclined NOT to report it as a separate unit that counts towards the Total Units count. I am sure this pool house is considered to be a part of the main home by the County Appraisal District, and it doesn’t have it’s own utility meters as well. There’s just not enough for me to consider it as a separate unit, at least not currently. I would report just 1 unit for this home, but there may be others with a different opinion. Regardless, be sure to be consistent in whatever approach you choose and be ready to explain.
We may need more detail on the pool house arrangement. Is a separate family living in the pool house? Is it rented out? Does it have separate meters for utilities? Does it have all of it’s own appliances, a full bathroom, laundry room, etc.? Basically, what is it’s use and purpose? Is it more used as a separate segregated bedroom, or an entirely independent dwelling as with a duplex or possible guest house situation? AND, how is it platted/zoned with the county?
You’re on the right track. If the HELOC 2nd lien did not involve a refinance or funds for HI or to purchase a dwelling, the HMDA loan purpose would be 4-Other. It originating at the same time as the purchase mortgage transaction means nothing unless proceeds were disbursed to help with that purchase.
Hi Jack…the aversion stems from the pricing options to pay down the interest rate via points being tied to the original/previous rate lock terms, so despite the affect to the “Net Rate” (decreased) at the time of later execution, the LOB interprets maintaining the original/previous lock’s Date Rate Set makes more sense and is in line with other regulatory guidance outside of HMDA (APOR and Rate Spread), not to mention pricing communications with Secondary Market investors. They believe the HMDA regulatory commentary doesn’t directly address this situation, despite our pointing out the examples were not the extent of Date Rate Set change considerations. They were just that…a couple of examples. We met and spoke on this again recently. One of them wants to check with LOS compliance contacts from their previous life elsewhere, and we are trying to have a meeting set up with an ABA mortgage compliance specialist. We definitely agree that it is most ideal if all regulatory guidance pertaining to one data element were perfectly aligned. We would prefer it…but our interpretation on this as it pertains to HMDA alone seems most accurate, and it appears others in the industry agree. I appreciate you feedback on this. Thanks!
Given that this is a HELOC, what are his plans for it after he buys out his partner’s interest? When I think strictly of the initial purpose, my inclination is to not report it as it is for business purposes (if no refi is involved)…but I am curious if someone ever asked about the subsequent purposes. The main thing here is taking what you believe to be the most defensible position and be consistent in your approach with future similar transactions.
