2019 Update: HMDA Home Improvement Loans

Let’s talk about HMDA and home improvement loans. When it comes to home improvement, any type of improvement to the real property is what HMDA calls a home improvement loan. If it’s a one to four family dwelling, I don’t care what you’re improving as long as it’s not personal property. Real property such as underground sprinklers, landscaping, maybe a detached garage. The regulation even gives an example of a doctor that is going to add on a wing to their home so that the doctor can practice medicine from home, or maybe me as a bank consultant, I want to do improvements. That may not be a consumer purpose loan for Reg Z, but HMDA says that that is a home improvement loan.

Now, you need to contrast that with any type of five-plus unit building. Imagine you have a mixed-use property on the first floor, there’s a commercial area that is nonresidential, and then we’ve got residential area. First off, we’ve classified this as primarily a dwelling, so we have a dwelling-secured loan. If we’re going to do home improvements, to “what” is the question. If you’re making improvements to the dwelling portion, it’s definitely a home improvement for HMDA. If you’re making improvements to the entire facility, in other words, maybe a new central air, HVAC, water, something like that, then that’s also going to be home improvement because the dwelling portion is being improved, at least in part.  But, if you’re making improvements to the non-dwelling portion only, maybe on the first floor of this building you’re putting in new windows. That is not affecting the dwelling portion, so HMDA says that is not a home improvement loan. There are two tests going on here. One we have to say, is this mixed-use property primarily a dwelling or not? If it is, then what are you improving?

These are the kind of things we’re going to get into January 22nd in our HMDA Transaction Coverage webinar. We’re going to get in the weeds talking about what is and what is not HMDA. Mixed-use property, mixed-purpose loans, and we’re going to demystify all this in plain English for you. We’ll see you then.

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Dave Dickinson

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