Situation:
Customer A&B got a loan 6 months ago for $120000 to purchase a home in the country. The loan was wrote up as an Installment Loan with Certificate of Deposits(CD) of Customer A’s mom as collateral because A&B were in the process of selling their house in town and once sold they were going to use the proceeds and payoff the $120000. So, as far as things look they own their home free and clear, the bank has no mortgage against it. Now, A&B are getting a divorce and customer A got the house in the country. Confused yet? Well, my loan officer wants to make a new 15 year Real Estate Loan for the $120000. He’s saying the purpose of this new loan will be just a Cashout to payoff the installment loan; however we are now going to use the house, Customer A’s primary resisdence, as the collateral. He says NOT HMDA.
I don’t agree on multiple things about this whole situation, but would or would you not report this to HMDA?

It is not purchase or home improvement. It is not a refinance because there is no home secured loan to pay off.

Not HMDA reportable.

Notwithstanding the abnormalities of the whole situation, I concur. Doesn't meet any of the purpose tests.

This has always been confusing for loan officers because it is often called a refinance. I had to get it through my head that it was not a refinance, just a simple "Finance", not a purchase or home improvement or a refinance.

It's all in the definitions and so many lenders use a term without regard to the specific legal definition -- which, of course, can be different depending on the reg. So, who can really blame them?

In the LO's mind, he is refinancing a $120,000 CD secured installment loan into a $120,000 real estate secured loan. And in this case, HMDA is not an issue.

Lenders often call these cash outs refi's because it is financing a property that has no existing lien, which usually is one where the first was previously paid off...so the loan was a refi, with the original financing having been the purchase.

However, it is not a refi for HMDA purposes, similar to how a home improvement loan for a project that involves construction work is not a construction loan for HMDA purposes. There is construction going on, the loan may be monitored as a construction loan (and for safety and soundness reasons that may be very appropriate), but for HMDA it is not a construction loan.

So don't tell lenders these loans are not refinances or not construction, just say that they are not reportable for HMDA according to HMDA definitions.

Thanks!

I am going to revive this one - I was just informed that something changed on HMDA that requires us to report even if the loan is not paying anything off. EX: Customer owns home free and clear. They get $50,000 loan to go buy cars, and boats, and fly to Vegas to become rich.

I have not reported because it does not satisfy an existing mortgage - I can't find anything showing me that this has changed, but have been told they were informed during exams. Can anyone confirm/deny this?

I sure can't confirm it (as i don't think it's true). I'd turn this around and have the people telling you that this changed to give you something confirming their story.

Oh...missed the part about being told in exams. There's nothing in Reg. C or the current GIR that would support those statements. ETA: the only time a loan on a home owned free and clear could be HMDA reportable would be if the proceeds were used for a HMDA purpose--purchase, home improvement, or refinance (the proceeds i guess could be used to extinguish a different dwelling-secured loan).

Whoever 'they' are, ask them to quote you chapter and verse from the Reg to support this.
If this truly came from an exam, the examiner will have quoted the citation to support their finding.
Be ready for all kinds of excuses as to why they can't get you the cite because there isn't one.
You're going to have to stand your ground on this one.
In order to be HMDA reportable an appliation has to be either for a home purchase, refinance or home improvement. Winning money in Vegas that might pay for landscaping doesn't count either.
Hang tough!

I am guessing that you are getting half the story. Ask them to tell you which loan they were discussing when the examiner told them this. Then have them tell you all about what they told the examiner. He is leaving something out, like maybe the purpose of the loan. Could be that even though they are making a loan with a dwelling that is owned free and clear, they plan to use the proceeds to buy a rental house, etc.

It can be quite confusing when the lender that got the information doesn't realize what part of the conversation was relevant!

Missed the most important part of your query, BQ.
NOTHING has changed on HMDA in the last few years.
The rule is still that if the borrower owns the house free and clear and is 'refinancing' it, you only report if the funds they're taking out will be used to purchase another dwelling or will be used for home improvement.

There are changes in the wings but CFPB has to make them effective and so far, it's nothing more than a whisper as to when or what will actually change.

eta: See this thread for continuing updates on changes to HMDA.

Thanks so much!! I couldnt' find anything either but wanted to check with others to ensure I wasn't crazy! I was sure if there were HMDA changes in the past couple years I would have known about it.

I will worry about the possible changes after I am done with the procedures and policies I already need for January :-)

I am going to stick to my guns on this - I have been really clean with HMDA and want to keep it that way! Thanks again everyone!