Reply To: HMDA with a change in terms

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A construction only transaction is typically exempt for HMDA purposes as temporary financing. If the original construction only transaction is not replaced by a new debt obligation and is only a modification of the original terms it is not considered a new extension of credit and would not be considered a closed-end mortgage loan for HMDA purposes.

That being said, I would strongly advise against modifying a construction only transaction into a permanent transaction. A refinance is the preferred method for moving a transaction from the construction phase to the permanent phase. A modification agreement may not have the proper language needed to support the bank’s interest in the transaction and/or collateral. If the bank makes it a practice of modifying construction loans into permanent financing, I would recommend consulting an attorney to verify the process does not constitute a refinance.