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#2087119 - 07/08/16 12:06 PM Loan Payoff HELOC/Money towards Investments
Cat Lover Offline
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I have a loan to payoff a HELOC and the majority of the funds will be used for investments purposes. Should it be reported as a refi or purchase since most of the funds will be used for that purpose.

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#2087120 - 07/08/16 12:12 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Kathleen O. Blanchard Offline

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If you have:

>a dwelling secured loan totally satisfying and replacing the dwelling secured HELOC (the HELOC must be paid off and closed, it cannot remain to be used again in any amount), and
>have at least one borrower the same, and
>the new loan is dwelling secured, - need not be the same dwelling as the one securing the HELOC being paid off

you have a reportable HMDA refinance. The purpose of the funds in the refinance do not matter other than some of them satisfying and replacing the HELOC.
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#2087121 - 07/08/16 12:20 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Cat Lover Offline
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So even if the 80% of the funds will go towards investments, you do not in this case reported as a purchase? I wanted to be sure that it was correct.

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#2087123 - 07/08/16 12:24 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Skittles Offline
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What does 'investments' mean?
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#2087128 - 07/08/16 12:39 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Cat Lover Offline
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Invest in real estate opportunities.

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#2087131 - 07/08/16 12:43 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Kathleen O. Blanchard Offline

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That can get messy because those could be non-dwelling real estate "opportunities" unless you know definitely that the properties purchased will be dwellings.

Some banks will report such a loan as purchase; others will not unless there is a dwelling on the table right now - and examiners go both ways. You really don't know what will be purchased...is the loan restricted to use for dwelling purchases and must will be monitored?

Is this new loan a line of credit (still optional reporting at this point in time) or a closed end term loan, or closed end drawn down line (they will draw as the make purchases?)
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#2087139 - 07/08/16 01:02 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Cat Lover Offline
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closed end term loan.

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#2087141 - 07/08/16 01:08 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Kathleen O. Blanchard Offline

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So they are getting money and conceivably could use it for any purposes at all.

I might be inclined to report as a refinance since you have no way of knowing or controlling how funds will be used.
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www.kaybeescomplianceinsights.com

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#2087143 - 07/08/16 01:10 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Cat Lover Offline
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In the past any cash-out transaction secured by a residential property and funds are to be used for investments, we reported as purchase and we use the collateral property for census information. We have never had to proof that there was a property out on the table, if it was secured by 1-4 we use residential, if it's multifamily we use for additional apt. opportunities and report it as a multifamily, on the other hand if we did not report it was considered a violation. On the other hand, if its only cash out reimbursement we don't report.

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#2087146 - 07/08/16 01:18 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Dan Persfull Online
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From the GIR:

Paragraph 4(a)(3).
1. Purpose—statement of applicant. An institution may rely on the oral or written statement of an applicant regarding the proposed use of loan proceeds. For example, a lender could use a check-box, or a purpose line, on a loan application to determine whether or not the applicant intends to use loan proceeds for home improvement purposes.


If we do a cash out refinance or a cash out equity loan and the borrower tells us they will be using the funds to purchase another residential property we will report it as a purchase.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2087149 - 07/08/16 01:24 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Cat Lover Offline
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Thank you Dan. Since 80% of the funds will be used for investments, should I report it as a purchase? They are terming out their HELOC with the other 20% of the funds.

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#2087163 - 07/08/16 01:55 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Kathleen O. Blanchard Offline

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I don't disagree because the customer has said they plan to purchase (clarify they mean residential and not non-res); but others have posted here that examiners have disallowed that unless a purchased was planned. So, if you have a history of examiners wanting something else and bank went with that, then you are in a different situation.
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#2087164 - 07/08/16 01:58 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Dan Persfull Online
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How the majority of the funds are going to be used is not a factor. See the definitions in 1003.2.

If any proceeds of a dwelling secured loan will be used to purchase another dwelling it is a home purchase by definition.

Page D-8 of the GIR allows you to rely on the purpose statement obtained from the borrower. In this case you are going to have to determine what "investments" mean. Are they other dwellings (residential properties) or are they business properties?

You will have to review the information provided in this thread and the known information for the loan request and the perceived intent of the borrower to make the call how you will handle this scenario.
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#2087165 - 07/08/16 02:01 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
SMQ, CRCM Offline
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Between the lines
Now that you have defined investments as purchases of dwellings, you could report as Purchase. The loan is for the stated purpose of purchasing dwellings and it is secured by a dwelling.

As Kathleen said, some banks treat as Purchase, some as Refi.

I think the issue that was causing you to receive various answers was your use of the term "investments". In lending, this could be properties, investment instruments (mutual fund, etc.), buy-in to a business venture, etc.
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#2087169 - 07/08/16 02:26 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Kathleen O. Blanchard Offline

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And again, if they told me they were buying a dwelling I could go with that, but investments, even investment real estate, doesn't really tell me anything. It could be an office building.
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www.kaybeescomplianceinsights.com

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#2087170 - 07/08/16 02:27 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
Cat Lover Offline
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Thank you all.

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#2088094 - 07/14/16 07:43 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
George Offline
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To piggy back off this, am I to understand that there is no time frame needed as to when the purchase to takes place? In my situation, we are paying off two existing loan plus adding funds for "future" purchases; no time frame is given for when these purchases may take place. He could essentially hold the money for the next 2 years before buying another property, and this would still be reported as a Purchase?

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#2088768 - 07/19/16 04:08 PM Re: Loan Payoff HELOC/Money towards Investments George
Frank Ernest Offline
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I don't see anything in HMDA or the GIR that puts a time limit on when the purchase takes place. We currently have a loan secured by a dwelling where the business is lessors of residential buildings and dwellings, and the stated purpose is to purchase dwellings as they become available. In this case, however, it is either reportable as a purchase or not reportable since we are taking a dwelling as security but we are not paying off any existing loan. We are reporting this as a purchase based on the section that Dan quoted that says we can rely on the oral or written purpose as noted by the borrower.

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#2088806 - 07/19/16 06:19 PM Re: Loan Payoff HELOC/Money towards Investments Cat Lover
George Offline
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And it doesn't matter how much money the borrower received, correct? If he/she only netted $10,000 from the cash-out refi but intends to use for future purchase, then it is still purchase?

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