Dave Dickinson provides a Plain English explanation of mixed-used properties under the new HMDA rules.
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Hi, it’s Dave Dickenson with Bankers Compliance Consulting and today I want to talk to you about: What is a dwelling, and what is not, when you have a mixed use property. Let me give you some examples.
Examples of Dwellings and Non-Dwellings
I printed out some pictures here. This is probably the typical commercial property, with businesses down below and there’s three levels of apartments up above. Three to one. Does that make it a dwelling? How about this one here. Here’s a grocery store or restaurant down below and above there’s one floor of dwelling space. Well, that’s 50/50. Do you have to be conservative and call that a dwelling? The regulation definition of a dwelling and HMDA help clarify a lot of things that really aren’t a change in 2018. But, we do have more information that says that the lender gets to classify the property as a dwelling or not. And they say you can use an income approach. For example, you can use square footage or any other reasonable method, like the income per square foot. The other thing I would say is ask the borrower is “why are you buying this place?” And if they say, “well it’s because of that grocery store restaurant and I just decided not to let that residential portion go to waste, I might as well rent it out”. Well then, that to me is a slam dunk, non dwelling. This one here is three to one if you go with square footage, but with income? I don’t know. Maybe again there’s some other things in there that you could say that this is not a dwelling and I don’t want to push it one way or the other. You don’t have to apply this on a consistent basis. It’s unique to each property and in each borrower.
When are These Dwellings or Non-Dwellings Affected by HMDA?
Here’s the beauty of it. If you say that these are non-dwellings and the borrower comes back and refinances that loan, it’s not subject to HMDA. This is because it’s not secured by a dwelling. You’ve classified this building mutually exclusive as a dwelling or not. And if you say it’s not, then when you refinance, it can’t be a subject to HMDA. Let me go a step further now. This borrower that has this non-dwelling comes back and wants to improve. So they borrow money to improve only the residential portion the apartments above. Well gee, that’s got to make it subject to HMDA right? No, if it’s not a dwelling, then it can’t be a home improvement loan. So, it’s vital that you classify these properties as dwellings or not. And if they’re not dwellings primarily, then they’re not submittd to HMDA nor can they be in the future. That’s the beauty of this part. There’s a lot of exemptions and really it’s reversing something that the the CFPB said they believe the Federal Reserve did wrong in 2004 when they mixed up this definition. So take advantage of this exemption and don’t be malicious about it, but certainly don’t do HMDA when you don’t have too.
How to Get More Information About HMDA Policy
If you need more information about HMDA? We’ve got full-day seminars where we have one-hour loaning officer essential webinars, we have two hours on just the data, two hours done just the coverage, we’ve got one hour on just collecting demographic information, and we have a two hour that covers it all from A to Z. Those are all upcoming between now and the end of 2017. So visit our website, go to the training links, and you can see the different options that you have to get the HMDA training you need.
Find all our HMDA Training options here –
David’s banking career began as a field examiner for the FDIC in 1990. He later became a Compliance Officer and Loan Officer for a small bank. In 1993, he established Banker’s Compliance Consulting. Along with his amazingly talented Team, he has written numerous compliance articles for prestigious banking publications and has developed compliance seminars that Banker’s Compliance Consulting produces.
He is an expert in compliance regulations. He is also a motivational speaker and innovative educator. His quick wit and sense of humor transforms the usually tiring topic of compliance into an enjoyable educational experience. David is on the faculty of the American Bankers Association National Compliance Schools and has served on the faculty of the Center for Financial Training for many years. He also is a frequent speaker at the ABA’s Regulatory Compliance Conference. He is also a trainer for hundreds of webinars, is a Certified Regulatory Compliance Manager (CRCM) and has been a BankersOnline Guru for many years. The American Bankers Association honored David with their Distinguished Service Award in 2016.
David and his wife Karen have three adult children, four grandchildren (none of whom live at home!) and two cats (of which Dave is allergic … the cats, not the children!). They recently moved to an acreage outside of Lincoln, Nebraska where he gets to play with his tractor. When possible David can be found fishing, making sawdust in his shop, or playing the guitar and piano. He also enjoys leading worship at his church.