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#2090723 - 07/29/16 07:27 PM Cash Out Refi when classified as "Limited" c/o
Banker K, CRCM Offline
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Oklahoma
Hello,

This question is in regard of when to show loan purpose as "refi" vs "cash out refi" for our Secondary Market loans.

Some of their loans they (and/or their investor?) classify as a "limited cash out refi". They have stated this is when the customer can get up to $2,000 at closing...sometimes it's as little as $100. I have actually seen some of them where the customer gets -0- back but their forms still call them "limited cash out refis".

I am not too familiar with Secondary Market rules, but for new HMDA, would you report these as "cash out refis" as long as the customer is getting some money back, even if it is a miniscule amount?
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#2091156 - 08/02/16 07:27 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
David Dickinson Offline
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There's a lot of "If's / then's" to answer your question. The Commentary to §1003.4(a)(3)#2 gives various scenarios to answer your questions.
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#2092311 - 08/09/16 02:50 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Kathleen O. Blanchard Offline

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The dollar amount back does not matter if the loan otherwise meets the requirements to be classified as a cash out refinance. Review the Commentary.
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#2103806 - 10/19/16 09:18 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
Okay thank you.

So from reading the commentary on Official Interpretation to 4(a)(3) Comment #2 says we report as a cash-out refi if it is a refi AND we considered it to be a cash-out refi under the investor's guidelines.

As explained by our Secondary Market area, Fannie Mae requires all investors to show "conventional" loans as cash-out refis and to sell it on the SM they have to designate it as such. (Either "cash-out refi", which is >$2K cash out at closing...or "limited cash-out refi" which is all others even if not really getting cash back at closing).

Based off of that, if our SM department is coding (?) their loan as a "limited cash-out refi", even if customer really wouldn't get cash back at closing, then we should code it as such on our HMDA LAR.

Is my understanding correct?
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#2104089 - 10/21/16 04:52 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Kathleen O. Blanchard Offline

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If you call it a cash out refi you report it as a cash out refi. Are you saying that Fannie requires all conventional to be cash out refi? I have heard about classification issues on construction to perm, but not for all conventional.

For the construction to perm, if it was not really treated as a refi by the financial institution, it is a purchase for HMDA. What would be the reason Fannie wants a no cash back to be called cash out refi?
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#2105195 - 10/28/16 08:38 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
I will confirm with our SM area. I do not understand that world - it's hard enough in my opinion to follow the regulations without adding more rules from different Investors. Thanks!
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#2105435 - 11/01/16 03:29 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Banker K, CRCM Offline
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Here is the response from our Secondary Market area:

You should reiterate that you did not mean that Fannie requires all conventional refi’s to be a cash-out refi.

The reality is that Fannie defines what they want the loan entered into their system (AUS/DU) and how delivered to them or investors that in turn deliver to them.

There are only two options for refinances sold on the secondary market to Fannie:
1) Cash-out: Getting more than $2,000 back at closing, paying off any debt that is not a first mortgage or purchase money second (so you could technically have the borrower bringing $8,000 to closing but if you are paying off credit cards or a second mtg opened after they bought the property you would code as a cash-out).
2) Limited cash out- all other refinances that are not cash-out by definition.



So, it's still not clear to me why some investors require things to be coded as "cash out refi" when customer is not getting any money back at closing, but appears that is their rule (?).

Based off of that though, if they/investor are requiring us to code as cash-out refi or limited cash-out refi (whatever they instruct it to be called), we would need to report on the LAR in 2018 as "cash out refi" right?

On your side note of perm financing of a construction loan...they would code as a 'refi' there too...but all this time we have reported as a 'purchase' for HMDA. Wouldn't we continue that practice for HMDA 2018 (purchase)? In reality, they are paying off a prior lien on the dwelling by the same borrower (paying off a construction loan)...but we have always been told to report for HMDA as purchase.
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#2105461 - 11/01/16 04:55 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Truffle Royale Offline

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Have you ever truly seen a 'no cash out' refi?
That would be a refinance that pays off the existing loan amount...period.
The borrower would have to pay for all the costs out of pocket.
We sell everything on secondary and most of the loans I see show the borrower is rolling the costs into the refinance.
If the costs of the loan are all the cash out is for, that's likely a 'limited cash out refinance'.
If the borrower is walking away with a chuck of cash or at closing is paying off existing debt that is not a mortgage on the property, that's a 'cash out' refi.

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#2105485 - 11/01/16 05:56 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Kathleen O. Blanchard Offline

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Originally Posted By Banker K

On your side note of perm financing of a construction loan...they would code as a 'refi' there too...but all this time we have reported as a 'purchase' for HMDA. Wouldn't we continue that practice for HMDA 2018 (purchase)? In reality, they are paying off a prior lien on the dwelling by the same borrower (paying off a construction loan)...but we have always been told to report for HMDA as purchase.


I will reply in more detail later but re the construction/perm, yes they are purchases for HMDA.
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#2105489 - 11/01/16 05:59 PM Re: Cash Out Refi when classified as "Limited" c/o Truffle Royale
Kathleen O. Blanchard Offline

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Actually, I have seen no cash out refinances, where the borrower pays costs out of pocket and the prior loan is simply refinanced. At some banks, it is fairly common.

But, if a borrower is walking away with $500 or $1,000 and the financial institution only considers cash outs as ones of $2,000 or more, and does not categorize the loan as a cash out refi, you would report as a straight refi for HMDA starting in 2018.
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#2105491 - 11/01/16 06:01 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
Yes I have seen where the customer brings cash to closing and does not receive cash back, example when paying costs in cash. Most of the time they are financing their fees but I have seen many where they do not get any cash out.

In addition to the perm financing of a construction loan question, now I am wondering how you would report for HMDA when it is being called a "refi" in the Secondary Market but is not a refi at all (we have maybe 1 a month this way). This is when the loan is truly a home equity loan, but Secondary Market calls all of those "refis" even though no prior mortgage is being paid off.
Secondary Market is so frustrating and confusing to me.

So in your examples above, are you going to report your "limited cash out refis" as 'cash out refis' or just 'refis' for HMDA?
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#2105597 - 11/02/16 12:00 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Kathleen O. Blanchard Offline

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Those transactions that are not refinances under the HMDA definition (no prior dwelling secured loan being paid off) will be "Other" for HMDA once we get to 2018. They are not reportable now. Many called them refinances, even though they are not.

Whether you will call limited cash out refinances "cash outs" for HMDA really will vary at each institution. It depends upon your rules.

One bank might class loans as cash outs if the cash out is any amount, another may only class as cash out if the amount exceeds $2,000 and yet a third might use $5,000.

For those selling to Fannie and Freddie and other common investors, you will see more consistency. Portfolio loans will not be as consistent.
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#2190067 - 08/22/18 02:36 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
J_Compliance Offline
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Reviving this topic. For refinances that are considered "limited cash-out refinance" under Fannie Mae, do we consider them cash out refinances for HMDA purposes even though there is no cash back in the transaction even to cover closing costs (strictly refinancing the principal balance of the loan)? Or would we consider these refinances under HMDA?

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#2190076 - 08/22/18 03:14 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Truffle Royale Offline

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Refinances.
It doesn't matter what FNMA calls them.
Example: FNMA calls the take-out of a construction loan a refinance. Reg C says it's a purchase and you must report it as such.
Look at your refinances with the Reg C eye. Is the borrower refinancing their mortgage with or without rolling costs in or ar they refinancing their mortgage and paying off credit cards, etc. If it's the latter, it's a cash-out refinance.

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#2190077 - 08/22/18 03:16 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
Our Secondary Market defined limited cash out as any cash back to the customer at closing under $2K.
These would not be reported 'cash out refi' for HMDA on our LAR.
Since the SM does not have a very good application form (the 1003; and what I mean by that is that SM typically calls things a purchase or a refi, even if neither of those are actually a TRUE loan purpose)...we created a separate form that is required to be completed by the LO or processors called a "purpose of refi certificate" and they have to narrow it down as to what exactly is happening. We rely on that for our HMDA reporting (after a period of double-checking them on these to make sure they're being completed correctly...).
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#2190078 - 08/22/18 03:22 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
raitchjay Offline
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OK
Just keep in mind that if you don't price or treat your cash-out refi's any differently than a straight refi, you aren't ever going to use the "cash out refinancing" purpose.
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#2190080 - 08/22/18 03:24 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Banker K, CRCM Offline
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^^^ that's a good point! Yes, our in-house loans don't treat them differently so we never use 'cash out refi' purpose for in-house loans. Only our secondary market does that due to investors.
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#2190100 - 08/22/18 04:18 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
J_Compliance Offline
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Thanks everyone for their input.

For secondary market loans, would you consider a refinance with $1,000 out to pay off credit cards a refinance or a cash-out refinance? Or is that up to the bank to decide?

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#2190115 - 08/22/18 04:48 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Adam Witmer Offline
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Is the product considered a cash-out product by the investor?
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#2190125 - 08/22/18 05:08 PM Re: Cash Out Refi when classified as "Limited" c/o Adam Witmer
J_Compliance Offline
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The investor is Fannie Mae so I would say yes the product is technically considered a limited cash out refinance product by the investor but Fannie Mae differentiates between a cash out refinance and a limited cash out refinance for pricing purposes. Maybe my question should be would it be reasonable to code a Fannie Mae limited cash out refinance as a refinance for HMDA purposes and code a Fannie Mae cash out refinance as a cash out refinance for HMDA purposes?

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#2190126 - 08/22/18 05:08 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Truffle Royale Offline

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FNMA - borrower gets cash for any purpose beyond refinancing the current mortgage = cash out refinance.

But I'm curious why you phrase the question the way you did, J Compliance. "For secondary market loans' is really no different from in-house loans, imho. I wouldn't apply different definitions for Reg C/HMDA based on whether it's secondary market or not. We're a FNMA shop so we do all loans to the same standard whether we will sell or portfolio them. That way if we ever need to sell a seasoned in-house loan, it meets secondary standards too. And it makes reporting on the LAR consistent throughout.

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#2190129 - 08/22/18 05:16 PM Re: Cash Out Refi when classified as "Limited" c/o Truffle Royale
J_Compliance Offline
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Truffle Royale - For in-house loans we don't treat cash out vs. non-cash out any differently so our in-house loans will always be refinances. Do you consider "cash out" for closing costs as cash out refinance?

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#2190132 - 08/22/18 05:26 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Banker K, CRCM Offline
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Yeah there are soooo many differences in underwriting alone in-house versus secondary market at our bank. Some fields are completed differently for separate divisions (as allowed by the Reg). Trust me when I say it's easier this way for us. Otherwise, we wouldn't need our in-house division for mortgage loans if we did all our underwriting the same.
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#2190134 - 08/22/18 05:31 PM Re: Cash Out Refi when classified as "Limited" c/o Banker K, CRCM
Truffle Royale Offline

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Do you consider "cash out" for closing costs as cash out refinance?
no

I stick to KISS and get as many fields treated the same as possible.
First it's easier for reporting.
Second, I don't have to sit with examiners trying to explain (and justify) every variation.
As long as you have it all documented as to what, when and why, you should be fine.

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#2190145 - 08/22/18 06:30 PM Re: Cash Out Refi when classified as "Limited" c/o Truffle Royale
Adam Witmer Offline
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Originally Posted By Truffle Royale
We're a FNMA shop so we do all loans to the same standard whether we will sell or portfolio them. That way if we ever need to sell a seasoned in-house loan, it meets secondary standards too. And it makes reporting on the LAR consistent throughout.


From my experience, this is rare for most shops as most have different standards for in-house and those sold on the secondary market. That said, I have been saying for some time that determining the purpose would be much easier if the bank would adopt the same product standards for cash-out for their in-house loans as they do for those they sell on the secondary market.
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