Should we report a withdrawn Construction to Permanent loan on our HMDA LAR? The borrowers were planning to do major construction on their existing home.

Yes, you should report the withdrawn loan application on your HMDA loan application register (LAR).

Regulation C requires financial institutions to report data on combined construction/permanent loans. This requirement will not change when the HMDA changes go into effect on January 1, 2018; the current guidance on reporting construction/permanent loans will be incorporated into the Official Interpretations for Regulation C.

Also, applications must be reported even if withdrawn. The HMDA instructions assign Code 4 to withdrawals and indicate that this code should be used to report an application “when the application is expressly withdrawn by the applicant before a credit decision is made.” Again, this will not change when the CFPB’s HMDA changes become effective.

For resources related to our guidance, please see:

Regulation C, 12 CFR 1003.4(d) (“A financial institution shall not report: . . . (3) Temporary financing (such as a bridge or construction loans; . . .”)
FFIEC, A Guide to HMDA Reporting/Getting It Right (“Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered ‘temporary financing’ under Regulation C and is not reported.”)
(As effective January 1, 2018) Official Interpretations, Regulation C, Paragraph 2(j), Comment 3 (“Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. A home purchase loan does not include a construction-only loan that is designed to be replaced by permanent financing at a later time, which is excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comment 3(c)(3)-1 provides additional details about transactions that are excluded as temporary financing.”)
Regulation C, Appendix A, Form and Instructions for Completion of HMDA Loan/Application Register (“(d) Use Code 4 only when the application is expressly withdrawn by the applicant before a credit decision is made. Do not use Code 4 if a request for preapproval is withdrawn; preapproval requests that are withdrawn are not reported under HMDA.”)
(As effective January 1, 2018) Official Interpretations, Regulation C, Paragraph 4(a)(8)(i), Comment 5 (“Action taken—application withdrawn. A financial institution reports that the application was withdrawn when the application is expressly withdrawn by the applicant before the financial institution makes a credit decision denying the application, before the financial institution makes a credit decision approving the application, or before the file is closed for incompleteness. A financial institution also reports application withdrawn if the financial institution provides a conditional approval specifying underwriting or creditworthiness conditions, pursuant to comment 4(a)(8)(i)-13, and the application is expressly withdrawn by the applicant before the applicant satisfies all specified underwriting or creditworthiness conditions. A preapproval request that is withdrawn is not reportable under HMDA. See § 1003.4(a).”)