IBA Compliance Connection

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We made a business purpose loan secured by a commercial property that was guaranteed by the business owners, a husband and wife. We charged off the loan three years ago. The guarantors recently agreed to begin making payments on the loan and granted us a mortgage on their home. The original business loan is still on our bank’s books (with a zero balance) for tracking purposes only. Is this loan reportable under the Home Mortgage Disclosure Act (HMDA)?

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The HMDA requires lenders to report home purchase loans, home improvement loans, and refinancings. A home purchase loan is “secured by and made for the purpose of purchasing a dwelling.” A home improvement loan is “for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located.” And a refinancing requires “a new obligation that satisfies and replaces an existing obligation by the same borrower, in which . . . both the existing obligation and the new obligation are secured by first liens on dwellings.” In this case, the loan does not fit any of these definitions, because the original loan was not secured by a dwelling, and the loan is not being made for purposes of purchasing or improving a dwelling.

For resources related to our guidance, please see:

  • Regulation C, 12 CFR 1003.4(a) (“A financial institution shall collect data regarding applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year.”)
  • Regulation C, 12 CFR 1003.2 (“Home purchase loan means a loan secured by and made for the purpose of purchasing a dwelling.”)
  • Regulation C, 12 CFR 1003.2  (“Home improvement loan means (1) A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located; and (2) A non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, and that is classified by the financial institution as a home improvement loan.”)
  • Regulation C, 12 CFR 1003.2 (“Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings.”)