We follow FNMA guidelines on whether we designate refinance as a cash out whenever the borrower receives more than $2,000 back. We have a situation where the borrower paid the appraisal fee POC. At closing, they received $2100 back. Should we be subtracting the appraisal fee from the $2100 they received back? Therefore, making the loan a refinance rather than a cash back refinance.

limited cash-out refinance
A refinance transaction in which the mortgage amount generally is limited to the sum of the unpaid principal balance of the
existing first mortgage, closing costs (including prepaid items), points, and the amount required to satisfy any mortgage liens
if the documented proceeds of the subordinate financing were solely used to acquire the property (if the borrower chooses
to satisfy them), and other funds for the borrower’s use (as long as the amount does not exceed the lesser of $2000 or 2%
of the principal amount of the new mortgage).

Since closing costs include prepaid items, typically an investor will allow those to go back to the borrower, but you really need to clear that with the investor.

Hello, We really aren't looking to see what the investor qualifies as cash out or not in regards to investor guidelines. We know that $2000 is the cutoff for FNMA. However, my question was if the borrower paid the appraisal fee outside of closing (POC) and then the borrower receives $2100 at closing. Would we subtract the POC amount from the $2100 resulting in a straight refinance, not a cash out. We are trying to determine the purpose code for HMDA.

Thank you

Do you charge a different rate or fee depending on whether it's a refinance or a cash out refinance?

No we don't.

Correction. We do have different rates and terms for refinancing and cash out.

Then that should answer your question. Look at the rates and terms to determine how it was approved.

The basic question is: has anyone ever subtracted a POC from the amount the borrower receives when determining cash out or straight refinance for HMDA loan purpose.

Well, the code for HMDA is only required if your processing or pricing is different between a limited cash out (which is a straight refinancing with the above caveat for a limited amount of cash back to the borrower) from a cash-out refinancing.

So, I am confused as to your question if you do not care how an investor treats them. The coding would either be based on the investor definition and how you submitted the loan for underwriting or your own internal definition and we cannot really help you on internal policies.

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.

Thank you all.