May 3, 2022 at 5:52 pm EDT #36792SMcNealParticipant
We have a HELOC made to an individual for the purpose of buying out his business partners interest in their company. Would this loan be HMDA reportable as a Consumer purpose HELOC or not reportable under HMDA’s business purposes which was not used to purchase, refinance or home improve a dwelling? I have persuasive arguments for both sides and wanted other takes on the matter.
May 4, 2022 at 9:52 am EDT #36795pparksParticipant
- This topic was modified 2 months ago by SMcNeal.
Given that this is a HELOC, what are his plans for it after he buys out his partner’s interest? When I think strictly of the initial purpose, my inclination is to not report it as it is for business purposes (if no refi is involved)…but I am curious if someone ever asked about the subsequent purposes. The main thing here is taking what you believe to be the most defensible position and be consistent in your approach with future similar transactions.May 4, 2022 at 2:53 pm EDT #36800jholzknechtKeymaster
Good question. Good input from pparks.
HMDA contains an exemption, in Section 1003.3(c)(10), for a closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p). The open-end line of credit is for a business purpose and it does not appear to be for home improvement, home purchase or refinance. So the line of credit would be exempt.
Pparks notes that the initial purpose is business, but if later transactions are consumer purpose maybe the line is for consumer, not business, purpose; which would trigger HMDA and right of rescission issues.
For a transaction to qualify as a line of credit, there is an expectation of repeated transactions. If line is used only to purchase the business and there are no further extensions contemplated, then the transaction is not a line of credit. It would be a closed-end extension of credit. The closed end loan would require different documentation.May 6, 2022 at 2:52 pm EDT #36826SMcNealParticipant
Thank you both for your input it has helped us further our discussions with our lender.
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