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#2202317 - 01/08/19 05:12 PM Cash-Out Refinance - Underwriting only difference
Tarhe Offline
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Joined: Nov 2006
Posts: 1,403
California
As it pertains to the paragraph below, does "considered it to be a cash-out refinancing IN PROCESSING the application" mean the underwriting? For example, we underwrite a cash-out refi differently than a regular refinance but the pricing/terms are the same. Does pricing have to be impacted in order to choose "Cash Out Refi" for the Purpose Code?

Section 1003.4(a)(3) - A financial institution reports a covered loan or an application as a cash-out refinancing if it is a refinancing as defined by § 1003.2(p) and the institution considered it to be a cash-out refinancing in processing the application or setting the terms (such as the interest rate or origination charges) under its guidelines or an investor's guidelines.

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#2202348 - 01/08/19 06:46 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
Carolina Blue Offline
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Carolina Blue
Joined: Jul 2005
Posts: 960
Lost in a regulatory fog
Based on the commentary in the final rule I believe the intent is to use the cash-out refinancing code when the terms of the loan are different due to the fact the applicant gets cash out, so that there can be a true like-to-like comparison when looking through the fair lending lens. That being said, they did distinctly include if the loan is processed differently. I would be concerned about any overzealous examiners so if at any point during the application process you treat the cash-out refi. application differently (e.g. separate application route or purpose code) then I would err on the side of caution and report as cash-out refinance.

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#2202535 - 01/10/19 01:36 PM Re: Cash-Out Refinance - Underwriting only difference Carolina Blue
Cat Lover Offline
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Property free and clear, taking cash out to buyout partner. That is reported as a cash out and not a refinance since the property is owned free and clear. Correct?

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#2202542 - 01/10/19 02:10 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
Adam Witmer Offline
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Joined: Sep 2010
Posts: 2,658
Well, what is the purpose of the loan? If it is to "buyout" a domestic partner and thus consumer purpose, I would report this as an "other" purpose loan. If the purpose is to "buyout" a business partner (on maybe a duplex rental property they each have existing ownership in) and the loan has a commercial or business purpose, I would not report this as "other" purpose loans are not reported for business/commercial purpose loans.

Either way, I would not call this a cash-out refinance as the home was free and clear, meaning that the new loan is not satisfying and replacing an existing obligation.
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All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2202583 - 01/10/19 04:40 PM Re: Cash-Out Refinance - Underwriting only difference Adam Witmer
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They originally purchased the property in cash, took out a home improvement loan that is paid off property free and clear. The loan will be to pay out one of the partners and the property has already a purchase contract. The property was originally purchased to refurbish and sell so it was investments purpose. I don't have a lien, so there is no refinance and we cannot use other on business transactions (property is under an LLC).

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#2202591 - 01/10/19 05:18 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
Adam Witmer Offline
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Posts: 2,658
Is the property in the name of the LLC and will remain in the name of the LLC? Or, is the ownership of the property changing?

I only ask so that we can thoroughly rule out a purchase purpose. If the ownership doesn't change, I agree that this is not reportable as it is an other purpose loan to an entity, meaning it is exempt from reporting.
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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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#2202624 - 01/10/19 07:03 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
Cat Lover Offline
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Posts: 147
The name is changing, the applicant is now using a different LLC. So it will change, so it should be purchase?

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#2202631 - 01/10/19 07:18 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
Adam Witmer Offline
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Joined: Sep 2010
Posts: 2,658
Possibly, but I need to understand what you mean by "the name is changing." If the name of the LLC is just changing (such as a DBA), but it is legally still the same entity, then it wouldn't be a purchase. If, however, a new entity (LLC) is going to take ownership from the old (and different) entity - regarless of the individuals who own the entity - then I would call this a purchase.

The challenge with small LLCs is that we often think of the owner and the LLC as one in the same, which technically isn't correct as an LLC is a separate entity. Therefore, if one LLC is taking ownership from another, I would call this a purchase.
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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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#2202632 - 01/10/19 07:21 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
rlcarey Online
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rlcarey
Joined: Jul 2001
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Galveston, TX
Depends on whether or not the transaction is facilitating the acquisition of the property from the previous LLC. Knowing that a lot of borrowers are not the sharpest Crayola's in the box, who knows what they are doing. Who is shown as the current owner versus your proposed borrower/owner in your title commitment.
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#2202640 - 01/10/19 08:00 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
Cat Lover Offline
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I'll Check, the Closing Statement shows Seller and Borrower are different.

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#2202646 - 01/10/19 08:23 PM Re: Cash-Out Refinance - Underwriting only difference Tarhe
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It shows our borrower, the other entity (seller) was going to be desolved after the sale.

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