IBA Compliance Connection

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We have a business purpose loan that we are going to refinance, with cash out to improve the business (a restaurant). The collateral for the existing loan and the refinance is an assignment of beneficial interest in a land trust, which contains two restaurants and a single-family dwelling. Is this reportable under the Home Mortgage Disclosure Act (HMDA) in 2018?

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Yes, we believe that this dwelling-secured loan is reportable under the new HMDA rules that became effective in 2018. We believe that a loan secured by an assignment of a beneficial interest in a land trust should be treated as secured by a dwelling, provided that the land trust holds a dwelling.

Under the new HMDA rules in Regulation C, a business-purpose loan is reportable only if it is made for purposes of home improvement, home purchase or refinancing a dwelling-secured loan. This loan is reportable under that standards because it is a refinancing of a dwelling-secured loan. We do not believe that the loan should be reported as a home improvement loan, since its proceeds are intended only for the improvement of a restaurant, not a dwelling.

For resources related to our guidance, please see:

  • Regulation C, 12 CFR 1003.3(c)(10) (Regulation C does not apply to “(10) A closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p)
  • Regulation C, 12 CFR 1003.2(p) (“Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.”)
  • Regulation C, 12 CFR 1003.2(i)  (“Home improvement loan means a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located.”)