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Application or Loan Data > Purpose

Home Improvement

Lenders 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 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 HOME IMPROVEMENT LOAN REPORTED UNDER REGULATION C?

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

See the “purpose” field on the HMDA-LAR and the codes for completing the field.

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

Under Regulation C, 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

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.

 

The reporting of HELOC's lines is optional. If lenders choose to report HELOCs, only the amount of the line used for HMDA purposes should be reported.

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