Several questions here about government monitoring and loan purposes.

First of all, we are not a HMDA reporting bank. We only follow government monitoring requirements for Reg B. That being said, it doesn't make it any clearer or easier.

What is the deciding factor in determining the purpose of a loan? Is it the amount of money, or the purpose the customer tells you. For example, if a customer owes $60,000 on a property, and wants to do $20,000 for home improvements by refinancing and adding to the original $60,000, for government monitoring purposes, is it considered a refinance or a home improvement loan? It's a big difference, because per Reg B, a refinance requires government monitoring, but not on home improvement loans. Since the majority of the $80,000 loan was used to refinance the existing mortgage, is it a refinance, or is it a home improvement loan since the primary purpose was the customer wanting to do the improvements? Would it only be considered a home improvement loan if the majority of the funds in the refinance was used for the improvements, or if the customer didn't have an existing mortgage and wanted a new mortgage for the improvements?

Likewise, say a customer owes $60,000 on a house, but has $30,000 in equity to do a cash-out refinance for debt consolidation. For government monitoring purposes, is it a refinance since $60k of the $90k refinanced the existing mortgage, or is it a debt consolidation loan since that was the primary purpose of the refinance in the first place? Reg B requires government monitoring for refinances, but not for debt consolidation loans. When the word "refinance" is used, does it strictly mean a rate/term no-new-funds refinance?

Please tell me I'm not alone in not alone in this confusion.

These are both definitely refinances under HMDA, but unlike HMDA that uses a waterfall, ECOA looks at the primary purpose. Both still sound like refinances to me though. The majority of the transaction is to replace an existing obligation.

1002.13(a)(1) A creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling...

1002.13(a) - 6. Refinancings. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower. A creditor that receives an application to refinance an existing extension of credit made by that creditor for the purchase of the applicant's dwelling may request the monitoring information again but is not required to do so if it was obtained in the earlier transaction.

This sentence is what gets me:

"This requirement does not apply to loans secured by the applicant's principal residence for purposes other than to purchase or refinance a dwelling (such as home-improvement or debt-consolidation purposes), or to loans to provide temporary financing..."

Is that worded to include home-improvement and debt-consolidation loans in government monitoring, or to exclude them? I read it as home-improvement and debt-consolidation loans are not to be monitored. If so, does the majority of the funds of the loan need to be used for home-improvement or debt-consolidation purposes to be considered those types of loans? If the majority of the funds is used to refinance an existing mortgage, is it monitored no matter how the remaining funds are used?

Correct. Yo should not collect GMI on HI and HE loans.


This is tricky and I wouldn't get hung up on the primary use. Assume the following:

I buy a house in 2000 for 100,000.

In 2005, my payoff balance is 70,000. I refinance it & also take out 30,000 in equity. Now the loan is 7/10th refinance and 3/10th HE. If you go with a strict read of 1002.13, you are to only collect GMI when the loan is primarily to purchase Collect GMI. This is 70% reinforce, so collect GMI.

In 2010, my payoff balance is 80,000. I refinance it and take out 40,000 in equity (the market value has gone up). Some would say my loan is. 7/10 x 8/12th refinance and 3/10th x 4/12th HE. Is that still primarily a refinance? Some would say you ignore the previous loans and go with the fact that you are refinancing 8/12th, so it's still primarily a refinancing. Either way, collect GMI.

In 2015 . . . do you see where this can get confusing?

I go with the idea that anytime you are refinancing any previous debt, it's a refinancing and you should collect GMI. I do think that if you had a loan where the existing debt was <50% of the new loan, you could argue that it's more HI or HE and you shouldn't collect GMI. I don't see examiners get that picky.

So you go with the thought that as long as any part of it is refinanced, it's a refinance, and collect GMI.

So when it mentions home-improvement or debt-consolidations, they mean that it's an equity loan with no existing obligation being replaced, correct?

I can follow that logic.