Need Guidance on Guidance Lines of Credit?

2/15/2017 - By Jennifer Paradise, CRCM

It's that time of the year again - to scrub your HMDA-LAR! For some reason, the topic of Guidance Lines of Credit (GLOC) seem to boggle the minds of lenders and compliance officers, as it pertains to HMDA. So, here's some guidance.

First, regardless of what your credit analyst or lending officer wants to call it, a guidance line of credit is not a revolving line of credit - it is merely a pre-approved lending limit for a borrower whereby separate closed-end "sub-notes" are made (which could be secured by one or more residential properties). So, while fancy terms such as "real estate investment fund" or "guidance facility" sound cooler, let's call it what it really is - a guidance line of credit.

Second, while it is true that reporting revolving lines of credit, such as home equity lines, is optional, let's not confuse a guidance line with a revolving line. A guidance line of credit is never reportable - only the closed-end sub-note(s) made for the purpose of purchasing, improving or refinancing residential real estate are.

Finally, when a closed-end sub-note is made for a HMDA-reportable purpose, it should be reported on your HMDA-LAR.

Simple right?

If you are still confused, it may be that you are asking yourself at least one of the questions below:

What property should I use for geocoding?

If the property is known at the time the sub-note is made and is the collateral for the loan, use the property being purchased, improved or refinanced. If the property is not known, use the location of the collateral securing the loan. It doesn't matter if it's not the property being purchased, improved or refinanced. By definition, a home purchase is any loan secured by and made for the purpose of purchasing a dwelling.

What if multiple properties are the collateral for the sub-note?

The answer is in the Getting It Right Guide:

* Property location—multiple properties (home improvement/refinance of home improvement). For a home improvement loan, an institution reports the property being improved. If more than one property is being improved, the institution reports the location of one of the properties or reports the loan using multiple entries on its HMDA/LAR (with unique identifiers) and allocating the loan amount among the properties.

* Property location—multiple properties (home purchase/refinance of home purchase). For a home purchase loan, an institution reports the property taken as security. If an institution takes more than one property as security, the institution reports the location of the property being purchased if there is just one. If the loan is to purchase multiple properties and is secured by multiple properties, the institution reports the location of one of the properties or reports the loan using multiple entries on its HMDA/LAR (with unique identifiers) and allocating the loan amount among the properties.

What if the purpose of the GLOC is not clearly stated as being for purchasing, improving or refinancing residential real estate?

The purpose should be absolutely clear for a lot of reasons, but let’s say for example, the applicant said the purpose is for “future real estate investments”? While that sounds nice, you need to know the specific purpose. So, you should have procedures in place to ensure the purpose is clearly identified before the loan is booked to avoid any confusion later on.

How do I know for sure whether we have included these sub-notes on our HMDA-LAR?

Start by pulling a report of all new loans. Hopefully, each sub-note will appear on the new loans report with a loan type, collateral, purpose and call code that correctly identifies the closed-end residential loan to purchase, improve or refinance a dwelling. Or, simply pull a report of all loans coded with that special GLOC user defined field you created, just so you can more easily identify them.

These kinds of regulations can be tricky to navigate. If you have any questions or concerns about these and other issues, email me or any member of our Financial Institution Consulting Team.