Compliance Alliance Question of the Week

Question:
We have a commercial customer with a line of credit that they use for working capital. They may also use the line for any other type of business-related expense. So, the commercial borrower used this original line to purchase a rental property. Now, we are paying down the line of credit with the property that was purchased as security. The original line won’t be fully paid down. Is this HMDA-reportable?
 
Answer:
No – this is not HMDA-reportable. This is because a commercial-purpose loan is only reportable as a home purchase loan, home improvement loan, or refinance. This situation only possibly implicates “refinance” for HMDA purposes (since there’s no indication that this is a home purchase or home improvement loan). However, this type of transaction does not constitute a “refinance” under HMDA because the new loan is only paying down the existing line of credit, rather than fully satisfying and replacing the line.
 
(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);
12 CFR 1003.3(c)(10): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/3/#c-10:
1. Loan or line of credit secured by a lien on unimproved land. Section 1003.3(c)(2) provides that a closed-end mortgage loan or an open-end line of credit secured by a lien on unimproved land is an excluded transaction.
 
(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.
12 CFR 1003.2(p): https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/2/#p