The HMDA mixed-use property test has slightly changed with the new 2018 rules. Some of what we knew before still applies, but there are definitely some new difference. Specifically, the mixed-use property test is now a two step process where you must first look at the primary use of a property and then make sure the loan does not have a purpose of home improvement.
Primary Use of a Property
First, you must determine if the primary use of a property is residential or commercial. This is basically the same test we had with the old HMDA rules, except that the test is now included in the definition of a dwelling rather than the definitions of a purchase or home improvement loan. From the 2015 final rule:
4. Mixed-use properties. A property used for both residential and commercial purposes, such as a building containing apartment units and retail space, is a dwelling if the property's primary use is residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis.
So, the mixed used test applies to property used for both residential and commercial purposes. In addition, it is important to note that the new HMDA rules state that the mixed use test could be either one or multiple properties. Specifically, comment 1003.4(a)(9)(3) refers to three apartment buildings that comprise a single multifamily dwelling:
“3. Multifamily dwellings. A single multifamily dwelling may have more than one postal address. For example, three apartment buildings, each with a different street address, comprise a single multifamily dwelling that secures a covered loan. For the purposes of 1003.4(a)(9), a financial institution reports the information required by 1003.4(a)(9) in the same manner described in comment 4(a)(9)-2.”
The bottom line is that the first part of the test must determine the primary use of the property.
Mixed Use and Home Improvement Purpose
The next part of the mixed-use test is to determine if purpose is a home improvement loan. If it is, we have to determine if the property is a single family residence or a multifamily residence as the mixed use test only applies to multifamily dwellings.
From the Sept 2017 final rule:
“4. Mixed-use property. A closed-end mortgage loan or an open-end line of credit to improve a multifamily dwelling used for residential and commercial purposes (for example, a building containing apartment units and retail space), or the real property on which such a dwelling is located, is a home improvement loan if the loan's proceeds are used either to improve the entire property (for example, to replace the heating system), or if the proceeds are used primarily to improve the residential portion of the property. An institution may use any reasonable standard to determine the primary use of the loan proceeds. An institution may select the standard to apply on a case-by-case basis. See comment 3(c)(10)-3ii for guidance on loans to improve primarily the commercial portion of a dwelling other than a multifamily dwelling.”
The preamble to the final rule expands on this:
"In the April 2017 HMDA Proposal, the Bureau proposed to amend the commentary to § 1003.2(i) to clarify further the reporting requirements for home improvement loans secured by mixed-use property. Specifically, the Bureau proposed to amend comment 2(i)-4 to clarify that the comment applies only to multifamily dwellings. For the reasons discussed below, the Bureau is adopting comment 2(i)-4 as proposed, with a minor amendment for further clarity."
So, if you have a single family structure and the purpose of the loan is home improvement, the mixed-use test won't apply.