 Application
or Loan Data > Purpose
Home Improvement
The definition of home improvement loans
has changed to provide greater consistency among reporting
institutions and, thus, to increase the usefulness of
the data. The regulation currently permits lenders to
report only those loans (secured or unsecured) where
a portion of the proceeds will be used for home improvement
and the lenders classify the loan as a home- improvement
loan on their systems. Reporting systems differ from
bank to bank, making comparison of home improvement
lending data difficult between institutions.
For that reason, the definition of a home improvement
loan has been revised to differentiate between secured
and unsecured home improvement loans. The rule for dwelling-secured
loans has been modified, and the rule for unsecured
loans remains the same. Lenders must now report all
dwelling-secured loans that have a home improvement
purpose, regardless of whether the lender classifies
the loans as home improvement loans. For unsecured loans
with a home improvement purpose, the new rule retains
the current classification test: If the lender enters
the loan on its books as a home improvement loan or
has otherwise coded or identified the loan as a home
improvement loan, it should be reported on the HMDA-LAR
as a home improvement loan.
WHEN IS A LOAN A HOME IMPROVEMENT LOAN UNDER THE AMENDED
REGULATION?
Under the revised regulation, a home improvement loan
may be secured or unsecured:
Secured transactions: Lenders must
determine if any part of the loan’s proceeds
are intended for home improvement purposes and, if
so, report the transaction as a home improvement loan.
This rule applies regardless of how the lender has
classified the loan.
- Lenders may rely on applicants' statements and
are not required to take other specific steps to
determine the loan purpose. However, it may be helpful
for the lender to use a check box or a blank on
an application form for the applicant to enter the
purpose of the loan.
Unsecured transactions: The reporting
of unsecured home improvement loans will continue
to hinge on a lender's own classification system.
- If the lender does not classify an unsecured loan
internally as a home improvement loan, the loan
does not have to be reported on the HMDA-LAR.
- The meaning of "classification" is very
broad. For example, using “call report”
codes for home improvement loans or color-coded
loan files will serve as home improvement classification.
REPORTING HOME IMPROVEMENT STATUS ON THE LAR
For reporting home improvement loans, HMDA reporters
enter Code 2 in the loan “purpose” field
on the HMDA-LAR.
Examples of Home Improvement
Loans
| EXAMPLE
ONE: SECURED TRANSACTION
FACTS: Moneymart Bank makes a $30,000
loan to David Brown to construct a
two-car detached garage. The loan
is secured by a second mortgage on
the borrower’s home, which is
located on the same real property.
The lender classifies the loan internally
as a home improvement loan. |
|
QUESTION |
Is this loan
reportable as a home improvement loan? |
|
ANSWER |
Prior to the
HMDA revisions, this loan would have
been reported as a home improvement
loan since the bank had classified
this transaction as a home improvement
loan. Under the new rule, because
the transaction is real-estate secured,
this loan is reported regardless of
whether the loan carries a home improvement
classification. |
|
|
| EXAMPLE
TWO: UNSECURED TRANSACTIONS
FACTS: Ridge City Bank plans to offer
a consumer loan product that will
provide home improvement financing.
The new product will be an unsecured
closed-end loan. To qualify for the
new loan product, the borrowers must
meet conservative underwriting guidelines
and own the homes they are improving.
The lender’s compliance officer
is charged with determining whether
applications for this new product
will be HMDA reportable. |
|
QUESTION |
Are these loans
reported as home improvement loans? |
|
ANSWER |
The rule for
unsecured home improvement loans remains
unchanged. Because these loans will
be unsecured, they will be reported
only if the lender classifies them
as home improvement loans on its loan
system or otherwise codes or identifies
them as home improvement loans. |
|
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 |
There is no change
in the regulation concerning home equity
lines of credit (HELOCs), which may be for
home purchase or home improvement purposes.
The reporting of these lines will continue
to be optional after the revisions become
effective Jan. 1, 2004. If lenders choose
to report HELOCs, only the amount of the
line used for HMDA purposes should be reported. |
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