VIDEO: GMI for Construction Refinance
In this Compliance Clip (video), Adam answers a question about collecting government monitoring information (GMI) for a second construction loan replacing a first construction loan. This question is specific to Regulation B and applies to those financial institutions who are not HMDA reporters.
Video Transcript
The following is a transcript of this video:
This Compliance Clip is going to talk about GMI for construction refinance. What we're talking about is government monitoring information for a construction loan that is being refinanced. Specifically, I received this question and this will make a little bit more sense. The question said, “We have a new construction only loan that is maturing and needs more funds. We're going to pay off the existing note and do a new loan. We are not a HMDA reporter, so do we need to collect government monitoring information for this new loan as it is technically a refinance?”
So they've got a construction loan and they’re refinancing this construction loan. When I received this question, the first question I asked was: is this new loan going to be permanent financing or is it going to be another short term construction loan to finish out the construction? And the answer was it was another loan to finish out the construction. It was not the end financing (i.e. final loan).
The answer to our question comes from Regulation B. We have to keep in mind that the government monitoring information collection requirements are found in both HMDA and Regulation B. So HMDA reporters have to follow HMDA rules where, those of you that are now exempt from HMDA, you now have to follow Regulation B. I think the case of the person asking the question is a newly exempt HMDA reporter that no longer has to follow HMDA data but is now subject to data collection requirements under Regulation B. Under regulation B is where we're going to get our answer to this question, because this is not a HMDA question, it's a Regulation B question on the government monitoring information collection. The answer is found in 1002.13.
What we have here is this construction loan that’s being refinanced by another construction loan. Is government monitoring information required? If you remember under Regulation B, under 1002.13, there's a requirement to collect government monitoring information for an owner-occupied loan that is for the purchase or refinancing of that dwelling that's going to be secured for the loan. So it has to be owner occupied, it has to be a purchase or a refinancing. The question is, this is a refinancing so do we have to collect government monitoring information? Let's look at the rule because Comment 3, under the commentary to 1002.13(a), gives us an out for the construction loan. It says, “Temporary financing. An application for temporary financing to construct the dwelling is not subject to the government monitoring information data collection requirements of 1002.13. But an application for both a temporary loan to finance construction of a dwelling and a permanent mortgage to take effect upon the completion of construction is subject to 1002.13.”
What this commentary tells me is there is an exception to the government monitoring information data collection for temporary financing. It's not just construction loans, not just the first one. It's for temporary financing and specifically, the example talks about construction loans. So in our case in this question, we had a first construction loan but the way I view this is we have a second construction loan that is also exempt from the government monitoring information collection because it is in fact, again, temporary financing. Had it been a final loan, then government monitoring information would have been required. In this case, having that second temporary financing, there's still going to be another loan eventually, whether it's through this creditor or a different creditor that then collects that government monitoring information. That is the response to our question in relation to 1002.13 of Regulation B.
That's all I have for this Compliance Clip.