We just wrapped up our HMDA audit and many of us are still scratching our heads on some of their findings. We were told by the examiners that we had to follow investor guidelines pertaining to the reporting of our "Cash-Out Refinances". From what I have gathered, they only looked at page 1 of the old 1003 (examining 2020 HMDA data) to see what checkbox was checked for Loan Purpose and that was how they wanted us to file it on the LAR, even if there was no existing lien being replaced on the property (We had those marked on the LAR as either 'Home Improvement' or 'Other' based on the use of funds disclosed to us by our borrowers). The Commentary that our regulators cited states "A Financial Institution reports a Covered Loan or an Application as a cash-out Refinancing if it is a Refinancing and the Financial Institution considered it to be a cash-out Refinancing when processing the Application or setting the terms under its or an investor’s guidelines..." even though the loans cited do not meet the definition of a "Refinance" per HMDA as there is no lien being replaced.

Our question is: Were we not correct in marking Fannie Mae "Cash-Out Refinances" where there was no existing lien being replaced as either 'Home Improvement' or 'Other' on the LAR? Management is torn between following what our regulator told us to do and documenting that "this is how they told us to do it" OR taking these issues further up the chain while continuing to report in accordance with our interpretation of the HMDA Guide. Thanks for your help!

If i'm understanding your post, no, i don't agree with your regulators. See the definition below.

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.

You can't mark it as a "cash-out refinancing" unless it is first a refinancing. I'd be pushing back.

I just re-read your post and should add.....it's not about an existing lien being replaced per se....it's whether a dwelling-secured loan is being satisfied and replaced by a new dwelling-secured loan to the same borrower (as to the definition of a "refinancing").

First of all, welcome to the BOL forums!

If I'm reading your post correctly, I agree with you and raitchjay and NOT with your regulators. The cash-out (reported as cash-out refinance) vs not cash out (reported as a refinance) only comes into play once you determine that you have a refinance. In other words, there are two types of refinancings for HMDA: cash-out and not cash out (reported as a refinance). So, if you don't have a refinance by definition in 1003.2, you would not report the application/loan as either a refinance or cash-out refinance. It would have to be a purchase, home improvement, or other purpose.

(p) Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.

I would absolutely push this up the chain of command. Otherwise, you will have a mess later if you now try to comply with what they told you, because what they told you is wrong.

The only "add" I would make is if you can still broach the topic with your examiners, do so before the findings become the ROE. These are the things to work out during the exam or at an exit review and before it's called a problem, if it's not.

Thank you all for your input! Your knowledge and expertise is always appreciated