HMDA: Business-Purpose Home Equity

Dave:
Business purpose home equity. So we just got done back two pages ago talking about consumer purpose. Now we're onto business purpose. So let's be really clear. If the money is used to purchase, refinance, or improve a dwelling, that's how the reasoning it's housing related, then we are going to call that HMDA. Most likely. There might be some exceptions coming up yet. But if I am borrowing money for business operations and it's secured by my dwelling or a dwelling, and that is not HMDA the first time.

So let me give you an example. Let's say that I come to you. I own Banker's Compliance Consulting. I want to borrow some money to be used for business operations. Maybe we're investing in something or I just can't make payroll this month or whatever. Don't tell anybody I can't make payroll. I got two consultants coming and listening in on this right now.

So anyway, let's say I come to you for business operating and you say, "Dave, what do you got for collateral?" I say, "Well, I've got some computers and some desks." You say, "Yeah, that's not real good. We need something more. We're going to take your house as collateral," you say. Now we have a dwelling secured loan, but is it for the purpose of purchasing? No. Refinancing? No. Improving? No. So when we get to this other, if it's business purpose as pure Reg Z would say, then we say that's not HMDA the first time. That's the catcher. It's the first time only that we say not HMDA.

We've got to look at this and find out what was this thing before, if there's something that's being repeated, or no, this is first time money and is it housing related or not? And all those come together. And this, again, I have great empathy for commercial loan officers that are trying to figure these things out. So first time money, not housing related, just housing secured, not HMDA. But you need to write down here at the very bottom. But if refinanced, but if refinanced, then it is subject to HMDA. So the second time you are going to have to do HMDA.

And that could be coming from another bank or it's in-house and you're rolling it over. And that's the tricky part of it. It's coming from another bank, they may not use the word refinance. They might just tell you they need this business operating to pay off another bank or something, and you have to know what is that for. You have to try to find out, and then again, tell your story.

These become pretty difficult, I think for a lot of commercial lenders, and we've got this 1071 rule coming. I don't want to go there. Other than that, this is going to be another difficulty thing that they're going to have to really have to find out what is going on, what was happening already, and what does this look like.

Again, Monday morning quarterback, sometimes it's real easy to look back at a file and say, "That looks like HMDA." You need to make sure that you can tell your story. In fact, let me just kind of step back a minute here. I mentioned about applications and that you have an initial app. I want you to think about that from HMDA as an application regulation that at the time of application you're supposed to be collecting demographic information. We're going to get to that in just a little bit.

So there's lots to know and lots to discover deciding what you got to do, depending on what the answers are to those first things. So think about that for a little bit and help your ... In fact, we're going to give you some flow charts here and try to help you with those things. But this is something where your loan officers have to tell the story, in a sense, show their work of why they did or did not do HMDA because it was based on this information that they received. It's not like you even go out and do an inspection because you have to collect their demographic information now. We'll come back to that in a little bit.