According to the Home Mortgage Disclosure Act (HMDA) in 1975, Congress ensures fair lending practices to be followed by lending institutions and banks.
HDMA needs lenders to collect, report and disclose certain information about mortgage lending activities. Even now it applies to business purpose loans (including small business loans) as well.
The new HDMA rule clarifies that a property used for commercial and residential purposes is considered as a dwelling if the primary use of the property is residential.
As per the rule that became effective on January 1, 2018, lenders will have to submit some information during the application process to the CFBP, which is Consumer Financial Protection Bureau through the new HMDA platform.
Under Regulation C, if an open-end line of credit or a closed-end of mortgage loan is for small business purpose, home purchase, improvement or refinance, secured by a dwelling then it is HMDA reportable. However, non-dwelling secured loans for home improvement are not reportable.
In simple words, if you determine that the property is a dwelling primarily, then it is HMDA reportable, but if it is not primarily a dwelling then it is not!
Are Small Business Loans HDMA reportable?
Any property that is used for both commercial and residential purposes like a building having a dwelling retail space and apartment units, it is HDMA reportable.
However, if your small business is secured by one-to-four family members, it is not reported as HDMA unless the aim of the loan is home improvement or purchase. Nor is the loan reported as small farm loan or business loan if the security interest is not taken as a precaution.
Such type of loan may be provided by examiners as “other loan data” for considering during a Community Reinvestment Act (CRA) evaluation. The refinancing of this type of loan would be reported under HMDA.