IBA Compliance Connection

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We have made several 12-month, interest only line of credit loans secured by 1-4 family residential properties. The money from these lines of credit was used to make significant renovations to existing, occupied properties. Would these loans be classified as “construction loans” or “lines of credit” on our Call Report?

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We believe that the Call Report classification for these loans depends on their purpose, which, based on the information you have provided, would be for construction.

In general, a transaction secured by a 1 – 4 family residential property and structured as a line of credit should be included in Subitem 1.c(3) on a Call Report. There is an exception, however, if the loan is for a construction purpose, which includes additions, alterations, and demolition of existing structures. In such a case, the loans secured by 1 – 4 family residential property should be included in Subitem 1.a(1).

Based on your facts, it appears that the lines of credit were extended so that the borrowers could renovate their residential properties. In such cases, the loans would be for construction purposes and included in Subitem 1.a(1).

For resources related to our guidance, please see:

  • FFIEC Call Report Instructions, Schedule RC-C, pg. RC-C-4a, Instructions for Part I, Item 1.c(1) (“Report . . . the amount outstanding under revolving, open-end lines of credit secured by 1-to-4 family residential properties. . .”)

  • FFIEC Call Report Instructions, Schedule RC-C, pg. RC-C-4a, Instructions for Part I, Item 1.c (“Report in the appropriate subitem . . . open-end and closed-end loans secured by real estate as evidenced by mortgages . . . or other liens on: Nonfarm property containing 1-to-4 dwelling units . . . Exclude loans for 1-to-4 family residential property construction and land development purposes (report in Schedule RC-C, part I, item 1.a).”)

  • FFIEC Call Report Instructions, Schedule RC-C, pg. RC-C-4, Instructions for Part I, Item 1.a.(1), (“Report . . . the amount outstanding of 1-4 family residential construction loans, i.e., loans for the purpose of constructing 1-4 family residential properties, which will secure the loan.”)

  • FFIEC Call Report Instructions, Schedule RC-C, pg. RC-C-3, Instructions for Part I, Item 1.a, (“For purposes of this item, ‘construction’ includes not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures.”)