Home Mortgage Disclosure Act (HMDA)/Reg C

Temporary financing is defined as a closed-end mortgage loan or an open-end line of credit which is designed to be replaced by permanent financing. The commentary for Regulation C does not provide a specific time frame for the permanent financing, but does provide a few examples, including a bridge loan. The examples make the determination regarding exclusion based on temporary financing if there is known intention to replace the loan with permanent financing and the financing will be a separate transaction. Here is a summary of the examples provided in the commentary:

Bridge Loans - Bridge loans are excluded if the loan is used for a home purchase where the borrower will pay off the loan with proceeds from the sale of an existing home and obtain permanent financing on the new home from the lender.

Construction Loans - Construction Loans are excluded as long as the permanent financing that will replace the construction loan will be a refinance of the loan or a separate loan transaction, regardless of the lender providing the permanent financing. This includes a construction loan where the loan may be renewed one or multiple times prior to being replaced by permanent financing. However, if the loan is made as a construction-permanent loan where the transaction is already designed to convert to permanent financing, it is not excluded.

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 if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale.

Investor Renovate and Resell Loans - These loans are also excluded when the temporary financing is not intended to be replaced by permanent financing. The commentary provides an example using a nine-month expiration term on the temporary financing, but also make it clear that the determination is based on the lack of permanent financing expected not the fact that the term is short.

There are two responses to this question - "no" and "it depends". The question appears to reach across two regulations: Regulation C (HMDA) and the Fair Credit Reporting Act (FCRA).

By "Preapproved Mailer" it is assumed you are referring to mailings sent to consumers indicating they have been preapproved for a loan under the FCRA permissible purpose provisions for the "prescreening" of potential consumers. In other words, those customers who meet the criteria which was requested from a credit reporting agency, such as having a specific a specific range of credit score, geographic location, number of trade lines, no foreclosures within a specific period of time, and so on, and therefore received a mailing from your organization indicating they have been preapproved based on this criteria. The fact that a consumer is identified as preapproved in this manner does not make it a reportable transaction for purposes of HMDA - this is the "no" part of the answer above.

However, if the consumer received such a mailing and requested a decision under a preapproval program established under the definition of a preapproval for purposes of HMDA and that request was subsequently approved but was not accepted by the consumer, then yes - this is the "it depends" part of the answer above. Remember though that HMDA''s definition of a preapproval requires a full credit qualification. Regulation C defines a preapproval as:

"Preapproval programs" - A request for preapproval for a home purchase loan, other than a home purchase loan that will be an open-end line of credit, a reverse mortgage, or secured by a multifamily dwelling, is an application under this section if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. The written commitment may not be subject to conditions other than:

• Conditions that require the identification of a suitable property;
• Conditions that require that no material change has occurred in the applicant'' financial condition or creditworthiness prior to closing; and
• Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the financial institution ordinarily attaches to a traditional home mortgage application."