Under the new HMDA rules that took effect in 2018, if the construction loan is designed to be replaced by permanent financing at a later date (in other words, a two-phase loan), the first phase of the construction loan is excluded from HMDA reporting as a temporary loan. However, if the construction loan is not designed to be replaced by permanent financing (in other words, a one-phase loan) is HMDA reportable, as it would not qualify for an exclusion as temporary financing.

For resources related to our guidance, please see:

• Regulation C, 12 CFR 1003.3(c) (“Excluded transactions. The requirements of this part do not apply to: . . . (3) Temporary financing; . . .”)

• Regulation C, Official Interpretations, Paragraph 3(c), Comment 1 (“A loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. For example: . . .

ii. Lender A extends credit to a borrower to finance construction of a dwelling. The borrower will obtain a new extension of credit for permanent financing for the , either from Lender A or from another lender, and either through a refinancing of the initial construction loan or a separate loan. The initial construction loan is excluded as temporary financing under § 1003.3(c)(3)

iv. Lender A extends credit to finance construction of a dwelling. The loan automatically will convert to permanent financing extended to the same borrower with Lender A once the construction phase is complete. Under § 1003.3(c)(3), the loan is not designed to be replaced by separate permanent financing extended to the same borrower, and therefore the temporary financing exclusion does not apply. See also comment 2(j)-3.

v. Lender A originates a loan with a nine-month term to enable an investor to purchase a home, renovate it, and re-sell it before the expires. Under § 1003.3(c)(3), the loan is not designed to be replaced by separate permanent financing extended to the same borrower, and therefore the temporary financing exclusion does not apply. Such a transaction is not temporary financing under § 1003.3(c)(3) merely because its term is short.”)

• Regulation C, Official Interpretations, Paragraph 3(c), Comment 2 (“Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. . . .”)