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#2205713 - 02/11/19 09:16 PM HMDA - Refi vs Cash Out Refi
B.L.T Offline
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We are trying to determine if we need to use the cash out refinance as a HMDA loan purpose. Our rate sheet and other terms have no differentiation and our processing and underwriting procedures are the same no matter what the purpose of the loan is. However, we do sell some of our loans to Freddie Mac, who assesses different fees for cash out refinances as compared with no cash out refinances. We do not pass any of these Freddie fees on to our customers. Additionally, there are a few documents in the file, including the Freddie Mac Underwriting Transmittal, that have a check box for cash out refinance, but it again has no impact on anything we do with the file.

Do we need to differentiate between refinance and cash out refinance for HMDA purposes or can we simply use refinance?

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#2205723 - 02/11/19 09:36 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Dan Persfull Offline
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All our in-house loans are coded 31.

Our Freddie Loans are coded either 31 or 32 depending if the loan is a cash-out under Freddie rules.
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#2205727 - 02/11/19 09:50 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Skittles Online
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Ditto Dan's reply.
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#2205761 - 02/12/19 02:22 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
RR Joker Offline
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The Swamp
all 31's here. [all in-house]
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#2224595 - 10/28/19 09:13 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
LostinRegLand Offline
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Sorry to revive an old thread but wanted to see how everyone is interpreting a cash out refinance.

We do not sell our loans. All are held in portfolio. We do not differentiate between a cash-out refinance from a refinance. Same underwriting, rate and terms, and processing.

Basing this from of 1004.4(a)(3)-2iii I code everything as a refinance (31).

Recently it was stated to me from someone very knowledgeable in HMDA that I am not applying that correctly and that even though we do not differentiate on our processing of the application or terms that for the HMDA LAR we must distinguish a cash-out refinance from a refinancing.

I questioned this and quoted the official interpretation as to why I am coding everything a 31 and I was told that I was not reading it correctly.

So any guru's that would like to help straighten me out on the correct code and how to apply this interpretation to the regulation?

iii. 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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#2224596 - 10/28/19 09:25 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
raitchjay Online
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Not a guru, but based on what you're saying, i think you are correct and the person telling you that you're wrong is incorrect. You aren't underwriting your straight refinances any differently than your cash-out refinances, so reporting them as a straight refinance is correct.
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#2224611 - 10/29/19 12:15 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Skittles Online
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TN
I agree with raitchjay.
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#2224614 - 10/29/19 12:39 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Dan Persfull Offline
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It's pretty straight forward.

ii. Assume a financial institution does not consider an application for a covered loan to be a cash-out refinancing under its own guidelines because the amount of cash received by the borrower does not exceed a certain threshold. Assume also that the institution approves the application, originates the covered loan, and sets the terms of the covered loan consistent with its own guidelines applicable to refinancings other than cash-out refinancings. In this example, the financial institution would report the covered loan as a refinancing for purposes of § 1003.4(a)(3).

iii. 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).

If the FI does not distinguish loans under its guidelines to be a cash-out refinancing then all such loans are reported as a Code 31.
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#2224620 - 10/29/19 12:53 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Adam Witmer Offline
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I agree with raitchjay, Skittles, and Dan (and you) that - based on what you provided - you will report everything as a refinance.

Part iii from the commentary that Dan quoted spells it out in black and white: "Assume a financial institution does not distinguish between a cash-out refinancing and a refinancing under its own guidelines.....the financial institution reports all covered loans and applications....as refinancings."

What explanation is this person giving you?
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#2224650 - 10/29/19 03:45 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Mountaineers_Fan Offline
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FWIW I agree with what others have said. You do not sell loans so don't use investor guidelines and you underwrite the same way for all refinancings.

I believe you're correct in coding them as 31.

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#2224670 - 10/29/19 05:01 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
David Dickinson Offline
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I'll just pile on: You are correct. Code 31 for all of your refinancing - whether cash out or not.
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#2224673 - 10/29/19 05:06 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Dan Persfull Offline
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If the "someone very knowledgeable in HMDA" still contends you are wrong print this thread and hand it to them. smile
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#2224792 - 10/30/19 04:38 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
LostinRegLand Offline
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Thank you all. I generally feel pretty confident on how I am coding HMDA but when I have an outside source who is looking at my data say nope you are wrong I worry. Not examiners saying this but I don't want to be wrong when they do finally come in.

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#2224794 - 10/30/19 04:46 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Truffle Royale Offline

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ooohhhh Auditors! Don't you love them?! They look at the general rule and they 'recommend' you follow it. I believe it was Dan who a long time ago recommended that when an Auditor (or examiner) states something has to be done their way, politely ask them to show you the citation for their comment because '(I) must have missed it'. Make sure you smile too. smile Often, as in this situation, there isn't anything they can offer as support and the issue will just die on the vine.

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#2224796 - 10/30/19 04:56 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
rlcarey Online
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And if these are consultants - find new ones smile
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#2229783 - 01/28/20 05:53 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Deb Offline
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Can I ask another question in regards to Refi vs cash-out. We do distinguish between refi and cash-out and code our loans accordingly as 31 or 32. We have a Home Equity Loan that is paying off a 2nd lien with the 1st mortgage staying intact. The 2nd mortgage that is being paid off was not used as purchase money when it was originally taken out. We are coding this loan as a cash-out. While we are not running these loans through Freddie or Fannie because they aren't being sold we still following their guidelines for underwriting. Am i missing something else because our consultant is saying that it should still be considered as a refinance not cash-out.

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#2229791 - 01/28/20 07:11 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Adam Witmer Offline
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Is the customer actually getting cash back from the closing? I haven't done secondary market loans in years, but does Freddie/Fannie consider the loan you describe (assuming no additional cash is going back to the customer) as a cash-out loan?
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#2229801 - 01/28/20 08:11 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Deb Offline
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Yes, they would consider it as a cash out if the borrower was getting more than $2000 back. On this particular loan the CD is showing that the borrower is walking away from the table with $1928 in true cash in hand, but in my opinion the full loan of $74,000 is cash out.

I believe our consultant is looking at just the amount the borrower is getting from the CD, not at the whole picture of what the funds are being used for.

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#2229824 - 01/28/20 10:33 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
hmdagal Online
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Aren't they paying off an existing mortgage? The money for the payoff would not be considered cash out for HMDA.

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#2229827 - 01/28/20 11:47 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
TMatt87 Offline
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For Fannie/Freddie loans, if the loan pays off multiple liens, it will be considered a cash-out refi and will be priced as such. We run into this a lot when people are refinancing their primary mortgage and a HELOC in 2nd position. No actual cash-out, but it is written as a cash-out debt consolidation for Fannie/Freddie so we code as a 32.
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#2229834 - 01/29/20 12:41 PM Re: HMDA - Refi vs Cash Out Refi B.L.T
Adam Witmer Offline
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So, again, would this particular loan be considered a cash-out under Fannie/Freddie? Deb, you said the amount is less than $2,000 back to the customer, but they didn't exceed that. And TMatt87 said it would be if it paid off multiple loans, but it does not appear to be the case based on the original question implies paying of a single loan is the purpose is "a Home Equity Loan that is paying off a 2nd lien with the 1st mortgage staying intact."

The other question I should ask is this: you say you distinguish between refi and cash-out, but what parameters do you use to distinguish between the two on an in-house loan, like this one? And have you defined these parameters somewhere in a policy or in product guidelines?

I ask because the rules/examples in 1003.4(a)(3) say that the loan must be approved under a product that has defined guidelines for a cash-out, either by an investor or by your own guidelines. One quirk I see in this scenario is that you aren't running the loan through Fannie/Freddie, so I'm not sure you can use their guidelines as the determining factor anyway (unless that is what you have adopted as your own guidelines for in-house loans). I'm mainly asking about Freddie/Fannie guidelines because, if it wouldn't be considered cash-out under those guidelines, I really doubt it would be under yours for in-house loans.
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