The Home Mortgage Disclosure Act (HMDA) requires lenders to collect and report vast amounts of information regarding mortgage loans, but when it comes to construction loans, the waters can get murky. Are construction loans HMDA reportable? The short answer is yes, but with some caveats. Let's delve deeper into the topics at hand.
As of 2018, the rulemaking body for HMDA, the Consumer Financial Protection Bureau (CFPB), intends to paint a comprehensive picture of the mortgage market. This includes construction loans, as they play a substantial role in housing development.
HMDA Eligible Loans
First, let's establish what loans are HMDA-reportable. In simple terms, HMDA requires reporting of closed-end mortgage loans and open-end loans that are secured by a dwelling, consumer finance loans, or home improvement loans.
Construction loans fall into this category. They are secured by the property being constructed, and once the construction is complete, they often convert into a permanent mortgage, making them eligible for reporting.
Detailed Construction Loan Reporting
HMDA reporting for construction loans becomes more intricate because these loans have two phases - construction and permanent financing. The regulatory challenge lies in capturing both phases.
For instance, when a construction loan converts into a permanent mortgage, sponsoring entities are required to report it as an origination with the loan purpose set as "Purchase" or "Refinance" as appropriate, provided all other origination-related data is available.
Reporting when Property is Improperly Identified
If the property is improperly identified (for example, location or property type is missing or inaccurate), then no HMDA reporting is required. However, this should be the exception, as lenders are expected to collect accurate property information.
It's crucial to note that while construction loans are typically reportable, the CFPB can provide exceptions on a case-by-case basis, especially if the construction loan doesn't qualify as a "mortgage loan" as defined in the HMDA regulation.
Exceptions and Core Loans
Certain construction loans may qualify for exceptions from HMDA reporting, particularly if the loan is under a specific dollar threshold as defined in the law.
The HMDA rule establishes a threshold amount for "core" loans that excludes loans below this dollar threshold from reporting requirements. The threshold amount can be adjusted annually based on the Consumer Price Index.
Counting Loan Amounts under the Threshold
It's essential to understand that although these small loans may not trigger reporting requirements individually, they should be counted towards the MFIs' (Mortgage Financial Institutions) total reported loan volume.
For example, if a construction loan under the threshold converts to a permanent mortgage, it should still be included in the MFI's total loan volume when reporting the institutional data table.
State and Local Laws
Besides the federal HMDA requirements, some states and localities have their own mortgage lending laws and regulations. It's crucial to check these local requirements, as they may have unique considerations for construction loans.
Staying current with federal and local laws, regulators' guidance, and industry best practices is key for lenders to ensure they are fully compliant with HMDA reporting for construction loans.
As the housing market evolves, so too will the nuances of HMDA reporting, particularly for construction loans. Being proactive, staying informed, and regularly reviewing and updating processes will best prepare lenders for any future changes.