Would someone help me see through the fog of Reg B GMI's requirements as it relates to refinancing.

If we have a request for a refinance of a primary residence would we always obtain GMI because the definition of a refinance has been met: primary residence and we are satisfying and replacing the original obligation. OR
Must we collect on a refinance ONLY if the lien that is being satisfied was the original purchase money lien?
I say that if we are paying off an existing lien (regardless of it's original purpose) then we would collect GMI but I'm just a smidge wobbly on my position.......

Examples:

Borrower applies for a refinance loan. We will be paying off the only lien on the property which is a Home Equity Line of Credit. The HELOC was NOT originally used as purchase money but we will be meeting the definition of a refinance in that we will be replacing and satisfying an existing lien on the property and secured by the applicant's primary residence. Collect GMI or not?

This request is strictly related to Reg B requirement of GMI; not related to any GMI requirement under HMDA.

Thank you...


1002.13 Information for monitoring purposes.
(a) Information to be requested. (1) A creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling, shall request....

Official Interpretations
13(a) 5. Transactions not covered. The information-collection requirements of this section apply to applications for credit primarily for the purchase or refinancing of a dwelling that is or will become the applicant's principal residence. Therefore, applications for credit secured by the applicant's principal residence but made primarily for a purpose other than the purchase or refinancing of the principal residence (such as loans for home improvement and debt consolidation) are not subject to the information-collection requirements. An application for an open-end home equity line of credit is not subject to this section unless it is readily apparent to the creditor when the application is taken that the primary purpose of the line is for the purchase or refinancing of a principal dwelling.

6. Refinancings. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower. A creditor that receives an application to refinance an existing extension of credit made by that creditor for the purchase of the applicant's dwelling may request the monitoring information again but is not required to do so if it was obtained in the earlier transaction.

It is a refinancing pure and simple and triggers GMI collection under Reg. B.

Randy: Let me question this. The word "refinance" in Reg B refers to purchase money that is being replaced. It's not the same definition as Reg C that is more of a legal action (a new note that satisfies and replaces a previous loan). Comment #6 to 1002.13(a) states, in part:
A creditor that receives an application to refinance an existing extension of credit made by that creditor for the purchase of the applicant's dwelling . . .

I don't believe Reg B says to collect GMI on all refinancings. It says to collect GMI on purchases and the reifnancings of purchase money. Before Reg C was amended in 2004, this was pretty clear. When HMDA changed it's definition of "refinance", it has caused this confusion for some as they crossed it to Reg B's definition of refinance as well.

Lenders should not collect GMI on home equity loans or the refinancing of HE loans.

I agree that not all refinances count for GMI under Reg B. It is really focused on purchases and refis of purchases.

I'm really struggling with this because in any of the definitions of refinance it states merely that it is when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower. It does not state that a refinance is a refinance if the existing obligation was originally purchase money.
Comment #5 Transactions not covered references purchase or refinance. No where in that comment does it exempt refinances of obligations that were not purchase money. It merely states refinances.
Comment #6 references "for the purchase" but in a manner that suggests IF the request is a refinance of a purchase money transaction then we can rely on GMI previously obtained. It is not written in manner that suggests it is the only definition of refinance.
I am having a hard time seeing the "refinance of purchase money" requirement of GMI under Reg B. Is that one reference in comment 6 the glue to the 'refi of purchase money' requirement??

Now that I am revisiting this...I could stretch my opinion that I expressed earlier. (And years ago that was not my opinion..I was swayed by folks here. Should have no listened.)

The Reg B definition of a refinanced just says that if the creditor is refinancing a purchase and collected the GMI data in the prior purchase, they do not have to re-request the data.

6. Refinancings. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower. A creditor that receives an application to refinance an existing extension of credit made by that creditor for the purchase of the applicant's dwelling may request the monitoring information again but is not required to do so if it was obtained in the earlier transaction.

6. Refinancings. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower.

That is the definition. The existing obligation does not have to have anything to do with the purchase of the property. It is any existing obligation.

As KB pointed out, the second sentence just points out that if you did the previous loan and it was a purchase transaction, you can use the GMI information previously gathered and you don't have to ask for it again.

We will continue to follow what we have been doing: Collecting GMI for "any refinance" of a primary residence that will satisfy and replace the current obligation regardless of the purpose of that existing lien.

Thank you all for the discussion.

L2P

I understand the confusion. §1002.13(a) states we are to NOT collect GMI collected on home equity, home improvement, etc. (I think we can all agree to that statement). It does say GMI should be collected on purchase loans and the refinancing. What isn't clear is the issue of refinancing of a home equity or home improvement, etc.

Before HMDA changed the definition of refinancing in 2004, this was not something anyone struggled with. I think it was perfectly clear that refinancing always meant "of the purchase money". I've never heard of an examiner that told bankers to collet GMI on a home equity loan that gets refinanced. Our real estate matrix (on the BOL Tools page for years) states to only collect GMI on purchases and the refinancing of purchases. It clearly states not to collect on other loans. No one has ever questioned it and it's being used by lenders and examiners all around the country.

Now that doesn't make me right, but it's a twist on the interpretation that I believe stems back to HMDA. This isn't HMDA. And the definition of refinancing in the new HMDA rules is changing back to the way it was before 2004 (not every refinancing gets reported - like commercial loans that are secured by a dwelling).

Do what you want, but that's my opinion.

KB also says "I agree that not all refinances count for GMI under Reg B. It is really focused on purchases and refis of purchases."