For HMDA purposes, would a construction-to-permanent loan be considered a refinance under the Loan Purpose?
It would actually be considered a home purchase loan under HMDA regardless of whether it is a combined construction to permanent loan or the permanent financing that replaces the temporary construction financing. If it is a construction-only loan to be replaced by permanent financing later, it will be excluded as temporary financing under 1003.3(c)(3).
3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3) Comment 3, 1003.2(j), https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/Interp-2/#2-j-Interp-3
I have a HMDA question about construction loans. Our construction loans are 360 months plus 9 months interest. They are construction to perm. The first 9 months are interest only and then the 10th month includes principal &interest. Would we report this on HMDA as an interest-only loan?
If the loan is a single transaction--a construction-to-perm loan (one closing)--our interpretation is that you would report it as having an interest-only feature. If this was two transactions, a construction-to-perm loan with two closings, then you would only report on the perm portion of the loan.
The requirements of this part do not apply to: Temporary Financing...
12 CFR § 1003.3(c)(3) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#c-3
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.
Commentary to 12 CFR § 1003.3(c)(3)-1 https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#3-c-3-Interp-1
Whether the contractual terms include or would have included any of the following: (ii) Interest-only payments as defined in Regulation Z, 12 CFR 1026.18(s)(7)(iv);
12 CFR § 1003.4(a)(27) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/4/#a-27
The term ‘interest-only’ means that, under the terms of the legal obligation, one or more of the periodic payments may be applied solely to accrued interest and not to loan principal; an ‘interest-only loan’ is a loan that permits interest-only payments.
12 CFR § 1026.18(s)(7)(iv) https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1026/18/#s-7-iv
Do loans made to executive officers have to be preapproved by the board?
No, unless the general requirement to get preapproval applies (which generally includes extensions over $500,000), the loan must be reported to the board but does not require preapproval. This is because the general prohibitions on insiders (§215.4), including the preapproval provision, and the more specific executive officer provisions (§ 215.5) are related, yet distinct.
What this means is that the executive officer may very well need to gain preapproval from the board, but not automatically just because she or he is an executive officer. This being said, the executive officer will need to report the extension to the board in all cases.
(b) Prior approval. (1) No member bank may extend credit (which term includes granting a line of credit) to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the higher of $25,000 or 5 percent of the member bank's unimpaired capital and unimpaired surplus, unless: (i) The extension of credit has been approved in advance by a majority of the entire board of directors of that bank; and (ii) The interested party has abstained from participating directly or indirectly in the voting.
12 CFR § 215.4(b)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=e05fffd3223a689ff17a3e90755f0aa2&mc=true&node=se12.2.215_14&rgn=div8
(d) Any extension of credit by a member bank to any of its executive officers shall be:
(1) Promptly reported to the member bank's board of directors;
12 CFR § 215.5(d)(1): https://www.ecfr.gov/cgi-bin/text-idx?SID=e05fffd3223a689ff17a3e90755f0aa2&mc=true&node=se12.2.215_15&rgn=div8
If we collect personal income from a Guarantor of a Small Business Loan, should we include this loan on our CRA Report and indicate it as a small business loans with gross revenue of less than $1 million if the personal income is under that threshold?
No--the guarantor's personal income should not factor into whether the loan qualifies as a small business loan. The guarantor's income does not affect the gross revenues of the business.
SECTION __.42(a)(4) – 1: When indicating whether a small business borrower had gross annual revenues of $1 million or less, upon what revenues should an institution rely?
A1. Generally, an institution should rely on the revenues that it considered in making its credit decision. For example, in the case of affiliated businesses, such as a parent corporation and its subsidiary, if the institution considered the revenues of the entity’s parent or a subsidiary corporation of the parent as well, then the institution would aggregate the revenues of both corporations to determine whether the revenues are $1 million or less. Alternatively, if the institution considered the revenues of only the entity to which the loan is actually extended, the institution should rely solely upon whether gross annual revenues are above or below $1 million for that entity. However, if the institution considered and relied on revenues or income of a cosigner or guarantor that is not an affiliate of the borrower, such as a sole proprietor, the institution should not adjust the borrower’s revenues for reporting purposes.
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