If you’re a commercial lender, you can be forgiven for wondering what, if anything, the Home Mortgage Disclosure Act, better known as HMDA, has to do with commercial loans.
HMDA, which was enacted by Congress in 1975 and implemented by the Federal Reserve Board’s Regulation C, requires banks to maintain and annually disclose data about home purchases and refinance applications. This data is then used to help regulators determine whether the bank is serving the housing needs of their communities and identify possible discriminatory lending patterns.
So what does this have to do with commercial loans? Here’s what:
If a commercial loan includes a junior lien on a residence as collateral, that loan was not HMDA-reportable when it was originally made. HMDA only applies to the purchase or refinance of the residence itself, not to a residence pledged as collateral for a commercial loan.
However, if the business borrower refinances or restructures a commercial loan that includes a junior lien on a residence, the loan is HMDA-reportable. This applies to any type of residence upon which there is a junior lien for a commercial loan, not just a primary residence, including second homes and multi-family apartments.
A Guide to HMDA Reporting, published by the Federal Financial Institutions Examinations Council, defines it this way:
“A (HMDA-reportable) refinancing is any dwelling-secured loan that replaces and satisfies another dwelling-secured loan to the same borrower. The purpose of the loan being refinanced is not relevant to determining whether the new loan is a refinancing for HMDA purposes. Nor is the borrower’s intended use of any additional cash borrowed relevant to determining whether the loan is a refinancing, though the borrower’s intended use of the funds could make the transaction a home improvement loan or a home purchase loan.”
Contact us if you have any questions about HMDA and Commercial Loan Refinancing.