The CFPB Offers HMDA Clarification
We recently contacted the CFPB for clarification on what exactly constitutes a dwelling for HMDA purposes. It’s quite common to have a loan secured by a structure that was originally built to serve as a dwelling but, due to varying circumstances, the structure will no longer be used for that purpose, or maybe it’s even uninhabitable.
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The first scenario we presented to the CFPB was a structure that looks like a dwelling and was recently used as a dwelling, but the intention is to convert that dwelling into a non-residential office building, daycare, etc.
We specifically pointed to the Commentary to §1003.2(f) #3 which states, “…structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices” are excluded from the definition of a dwelling.
What we sought to clarify is whether this exclusion applies to:
applications where the loan proceeds will be used to convert a structure designed as a dwelling into a daycare or office; OR,
only applications to be secured by a structure which has already previously been converted to a daycare facility or office.
The CFPB indicated this comment should be used only in the “past tense.” Therefore, it does not matter if a structure will be turned into something else in the future. Until a structure has actually been converted into an office building or daycare, it IS a dwelling. In other words, a loan to purchase (or refinance or improve) a structure that has most recently been used as a dwelling is an HMDA-reportable transaction, even if the borrower’s plan is to turn it into an office building or daycare. To make it even more simple, a dwelling is a dwelling until it is something else.
The second scenario we presented to the CFPB had to do with applications secured by a structure that used to be a dwelling but has either been abandoned and/or is in such poor condition that there is no intention or even the ability for it to be used as a dwelling. In most cases, an applicant is looking to buy the property for another reason, and the dilapidated dwelling comes with it. We asked the CFPB, do non-livable structures still fall within the definition of a dwelling? We even provided a picture of the following example:
The CFPB noted that Regulation C’s definition of a dwelling does not get into the condition of a structure; thus, it does NOT matter what condition the structure is in. Unless a “dwelling” has been converted into some other type of non-dwelling structure, it remains a dwelling.
Again, a dwelling remains a dwelling until it is something else.
While we don’t particularly like the CFPB’s interpretation, it is what it is. If nothing else, it does give us a “bright-line test” and eliminates any subjectivity when determining whether something is a dwelling.
HMDA has been around for a long time, and the fact that our industry is still questioning or “debating” what constitutes a dwelling 30+ years later is a perfect example of why HMDA is so difficult to comply with. It seems no matter how much information is thrown at us, there is still so much of it that’s left to interpretation. When that happens, it usually still comes down to picking a stance, being consistent, and being ready and willing to defend yourself.