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#2141334 - 08/09/17 02:15 PM Refinance or Cash Out Refinance In House HMDA
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We have secondary market loans so I am clear on what makes them refinance or cash out refinance for HMDA reporting. What I am unclear on are in-house loans. We currently don't define cash out refinance for in-house loans and don't price or underwrite any different.

I attended two different seminars. The first presenter said that even though we have criteria for secondary market loans, since we don't for in-house loans all in-house loans would be reported as "refinances". The second presenter said that since we did originate secondary market loans and define cash out refinance there, that we HAD to define cash out refinance for in-house loans and didn't have the option of just reporting all as "refinance". He did say that defining cash out could be as simple as saying if there were any proceeds at all going to the borrower that is was a cash out.

Anyone have any strong thoughts on which presenter was right or a difference viewpoint altogether?
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#2141340 - 08/09/17 02:29 PM Re: Refinance or Cash Out Refinance In House HMDA Red Raiders
rlcarey Offline
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Galveston, TX
Sounds like the Bank does not offer in-house loans based on investor guidelines.

Assume a financial institution does not distinguish between a cash-out refinancing and a refinancing under its own guidelines, and sets the terms of all refinancings without regard to the amount of cash received by the borrower at closing or account opening, and does not offer loan products under investor guidelines. In this example, the financial institution reports all covered loans and applications for covered loans that are defined by § 1003.2(p) as refinancings for purposes of § 1003.4(a)(3).
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#2141351 - 08/09/17 02:43 PM Re: Refinance or Cash Out Refinance In House HMDA Red Raiders
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Thanks for the response, Randy. That is what both presenters referenced. The first saying that since we didn't distinguish between refinance and cash out refinance for in-house loans all would be "refinance". The second said he was hung up on this part in that same section: "and does not offer loan products under investor guidelines." In his opinion, since we did originate secondary market guidelines that this section wouldn't apply to us and we had to go by the guidance in the commentary in 2(i) and 2(ii) of 1003.4(a)(3).
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#2141355 - 08/09/17 02:58 PM Re: Refinance or Cash Out Refinance In House HMDA Red Raiders
rlcarey Offline
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Galveston, TX
I would go with the former rather than the later. Many banks originate in-house loans based on investor guidelines as they may at some point in the future decide to sell them down the road. I don't think it makes a difference if those sales happen on day one or in year two - it all depends if the product at the time of origination is based on investor guidelines.
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#2141671 - 08/11/17 01:49 PM Re: Refinance or Cash Out Refinance In House HMDA Red Raiders
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So just to be clear:

1. We would follow secondary market guidelines for determining (for HMDA) if we have a refinance or a cash out refinance
2. For our in-house loans, since we don't have any guidelines to differentiate the two and they aren't priced or underwritten any differently (between cash out and non cash out) then we would report all as refinance
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#2141682 - 08/11/17 02:33 PM Re: Refinance or Cash Out Refinance In House HMDA Red Raiders
rlcarey Offline
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Galveston, TX
That is the way I read it.
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#2141717 - 08/11/17 03:57 PM Re: Refinance or Cash Out Refinance In House HMDA rlcarey
Lisa Offline
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Our Compliance Department has a question on the purpose code they should be using on cash out refinance when the applicant has the intention of using the funds to purchase another non-owner occupied residence for investment purposes and at time of]closing or w/d or denial, they have not decided on which investment home to purchase. This is what I would call an indirect purchase. How do we code those loans that DO ORIGINATE and the customer receives the cash out but we cannot PROVE that the loan funds went to a purchase. Do we still code it on the HMDA LAR as a purchase or do we see if it satisfies the HMDA Refi definition? Are we required to prove that the funds went to this purpose in the file? We use a Net Tangible Benefit and the Loan Approval right now to determine the purpose of the loan. Is that sufficient – to rely on the intended purpose of the cash out or is it necessary to prove where the money goes to? For loans that DO NOT ORIGINATE (loans that are denied/withdrawn or closed for incompleteness), and the same situation stands – do we code those HMDA reportable applications as a purchase based on the applicant’s intended purpose to use those funds? Or do we need to prove that we had an address on the investment property to prove the monies were actually going to go to that purpose? Thank you.

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#2141739 - 08/11/17 05:54 PM Re: Refinance or Cash Out Refinance In House HMDA Red Raiders
David Dickinson Offline
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Central City, NE
I agree this is a purchase.
How do you provide the funds were for purchase money? I don't think you have to. You document that's what they wanted. There are several places in the new HMDA rules that indicate you may rely on the applicant's stated purpose. For instance:

A financial institution may rely on the oral or written statement of an applicant regarding the proposed use of covered loan proceeds. [Commentary to §1003.4(a)(3) #1]

In determining whether a... loan or line ...or an application for a... loan or line ...is for home improvement purposes, an institution may rely on the applicant’s or borrower’s stated purpose(s) for the loan or line... at the time the application is received or the credit decision is made. An institution need not confirm that the borrower actually uses any of the funds for the stated purpose(s). [Commentary to §1003.2(i) #6]
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