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#2200276 - 12/10/18 09:40 PM Loan Purpose
clinds Offline
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If customer does a cash-out refinance and uses the cash-out to purchase rental property, I am under the impression this would be a loan purpose of 32 - cash out refinancing; however, I have discovered that our mortgage department has changed this to home purchase because of the intent of the proceeds. Should this be a cash-out refinance or purchase?

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#2200278 - 12/10/18 09:45 PM Re: Loan Purpose clinds
raitchjay Offline
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Purchase, Purchase trumps refi. The hierarchy is:

purchase
refi (or cash out refi)
home improvement
other
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#2200279 - 12/10/18 09:47 PM Re: Loan Purpose clinds
raitchjay Offline
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3. Purpose—multiple-purpose loan. Section 1003.4(a)(3) requires a financial institution to report the purpose of a covered loan or application. If a covered loan is a home purchase loan as well as a home improvement loan, a refinancing, or a cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the loan as a home purchase loan. If a covered loan is a home improvement loan as well as a refinancing or cash-out refinancing, but the covered loan is not a home purchase loan, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a refinancing or a cash-out refinancing, as appropriate. If a covered loan is a refinancing or cash-out refinancing as well as for another purpose, such as for the purpose of paying educational expenses, but the covered loan is not a home purchase loan, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a refinancing or a cash-out refinancing, as appropriate. See comment 4(a)(3)-2. If a covered loan is a home improvement loan as well as for another purpose, but the covered loan is not a home purchase loan, a refinancing, or cash-out refinancing, an institution complies with § 1003.4(a)(3) by reporting the covered loan as a home improvement loan. See comment 2(i)-1.
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#2200299 - 12/11/18 12:34 PM Re: Loan Purpose clinds
Adam Witmer Offline
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I agree with raitchjay that this would be reported as a purchase. As previously said, there is a hierarchy, or "waterfall" that must be used when determining the purpose on multiple purpose loans. Said another way, a loan/application can have multiple purposes, but you only report one purpose on your HMDA LAR in accordance with the established hierarchy.

The way it works is that a purchase is king, meaning it always takes precedence over other purposes. Next in line is a refinance which includes both a refinancing (satisfying and replacing an existing obligation) and a cash-out refinance (which includes money back according to specifics found in the commentary). After a refinancing comes a home improvement loan followed by "other" purpose loans.

To explain this, the following multiple purpose scenarios explain the hierarchy and which purposes must be reported on the LAR:

-Home Purchase Loan and Home Improvement Loan = Home Purchase Loan
-Home Purchase Loan and Refinancing = Home Purchase Loan
-Home Purchase Loan and cash-out Refinancing = Home Purchase Loan
-Home Purchase Loan and other = Home Purchase Loan
-Home Improvement Loan and Refinancing = Refinancing
-Home Improvement Loan and cash-out Refinancing = Cash-out Refinancing
-Refinancing and other = Refinancing
-Cash-out Refinancing and other = Cash-out Refinancing
-Home Improvement Loan and other = Home Improvement Loan

If you are interested in a bit deeper explanation on the hierarchy, I recorded about an 8 minute a video explaining this in detail here: https://www.compliancecohort.com/blog/hmda-loan-purpose-hierarchy

Hope that helps.
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#2200308 - 12/11/18 01:44 PM Re: Loan Purpose clinds
RR Becca Offline
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out of the frying pan...
Just to be clear - is the property being purchased also being taken as collateral or is the loan only to be secured by the existing property?
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#2200309 - 12/11/18 01:52 PM Re: Loan Purpose clinds
Adam Witmer Offline
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RR Becca, maybe I'm missing something without coffee this morning, but it shouldn't matter whether the collateral is the purchased property or the existing property.

1. Multiple properties. A home purchase loan includes a closed-end mortgage loan or an open-end line of credit secured by one dwelling and used to purchase another dwelling. For example, if a person obtains a home-equity loan or a reverse mortgage secured by dwelling A to purchase dwelling B, the home-equity loan or the reverse mortgage is a home purchase loan under § 1003.2(j).

That said, the OP didn't exactly say what was being refinanced, so I have assumed it included a dwelling - if it wasn't, that would be an entirely different scenario.
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
www.compliancecohort.com

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#2200361 - 12/11/18 07:09 PM Re: Loan Purpose Adam Witmer
RR Becca Offline
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RR Becca
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out of the frying pan...
Originally Posted By Adam Witmer
That said, the OP didn't exactly say what was being refinanced, so I have assumed it included a dwelling - if it wasn't, that would be an entirely different scenario.


This is what I was getting at - I just left part of the thought out of my sentence. Apologies. crazy
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#2200369 - 12/11/18 07:52 PM Re: Loan Purpose clinds
raitchjay Offline
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Oh....i think i see where ya'll are going now....yeah, i assumed that the refinance they were asking about was a dwelling-secured loan. If not, then we aren't in HMDA land at all....
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