The determination of a HMDA covered loan is driven by the “extension of credit,” which generally requires a new debt obligation. Loan modifications are not considered a “covered” transaction if the existing debt obligation is not satisfied and replaced. Single closing construction to permanent loans are covered transactions. If a lender extends credit for construction only and then converts the loan to permanent financing, the permanent financing would be reported as a purchase. Excerpts from the HMDA Guide are provided below:
- Under Regulation C, an “extension of credit” generally requires a new debt obligation. Comment 2(d)-2. Thus, for example, a loan modification where the existing debt obligation is not satisfied and replaced is not generally a covered loan (i.e., closed-end mortgage loan or open-end line of credit) under Regulation C. Except as described below, if a transaction modifies, renews, extends, or amends the terms of an existing debt obligation, but the existing debt obligation is not satisfied and replaced, the transaction is not a covered loan. It is important to note that Regulation C defines the phrase “extension of credit” differently than Regulation B, 12 CFR Part 1002.8 Comment 2(d)-2 and 2(o)-2.
- 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).