At our institution we have different terms for our cash-out refinancing versus refinancing and we have in our procedures that if there is a mortgage loan that is a Cash-out refi by these terms, it is a cash-out refi in the HMDA reporting purpose.

A loan officer noticed that in our mortgage system it states "cash-out refinancing (consumer only)". What does the consumer only mean? Does it mean consumer purpose? So if we had a mortgage loan whose collateral is a SFR investment property with cash-out to improve the investment property would that still be cash-out refinance purpose? Or do they mean that it has to be a consumer as the borrower?

Any guidance on this? Thank you!

"A loan officer noticed that in our mortgage system it states "cash-out refinancing (consumer only)"."

If it is in your system, how are we suppose to know what it means, unless I am totally misunderstanding your question? What system are you talking about?

Maybe it is related to something like this: "Assume a financial institution considers an application for a loan product to be a cash-out refinancing under an investor's guidelines because of the amount of cash received by the borrower at closing or account opening. "

Investors typically will only buy loans made to individuals (consumers?) rather than business entities. But if you price such loans differently internally, I am not sure it matters whether the applicant is an individual or business.

I'm sorry for not being clear.
The mortgage system we use is Encompass and for the drop down menu option in the HMDA screen it says "consumer only" next to the Cash-out refinancing option. I was just wondering if there was anything in the reg that states that cash-out refinancing is only to be used on consumer loans or if the borrower was a consumer under HMDA.
I'm in the same camp as you and I thought it would not matter that the applicant is an individual or a business. But just wanted to get my question out there in case I missed something. Thank you!

It is odd that it indicates that in Encompass. My understanding is that Encompass can only be used for consumer loans. It won't generate documents for legal entities.

It's simpler than that --

For HMDA loans, the purpose categories you can report are home purchase, home improvement, refinancing, cash-out refinancing, and other. But for business or commercial purpose loans, the options are home purchase, home improvement, or refinancing.

"Cash-out refinancing" and "other" aren't on the business or commercial purpose menu.

Oh - great call John.

According to the FIG: Q613 - If Business or Commercial Purpose equals 1, then Loan Purpose generally should equal 1, 2, 31, 32, or 5.

Code 32-Cash-out Refinance is allowed for a business purpose transaction.

Well that is interesting and good catch. So we might be back to square one after all. I guess the commentary just says to report the applicable loan purpose and there are two potential codes for a refinance.

5. Purpose—business or commercial purpose loans. If a covered loan primarily is for a business or commercial purpose as described in § 1003.3(c)(10) and comment 3(c)(10)-2 and is a home purchase loan, home improvement loan, or a refinancing, § 1003.4(a)(3) requires the financial institution to report the applicable loan purpose. If a loan primarily is for a business or commercial purpose but is not a home purchase loan, home improvement loan, or a refinancing, the loan is an excluded transaction under § 1003.3(c)(10).

Home purchase loan, home improvement loan, and refinancing are all defined terms in Reg C. Refinancing includes both cash-out and no cash refis in the definitions. I would disagree with Encompass on this one. I would certainly not exclude a cash-out commercial purpose refinance as I would an "other."

1003.3(c)(10) A closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j), or a refinancing under § 1003.2(p);

1003.2(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.

Comment 6 - Multiple-purpose loans. A closed-end mortgage loan or an open-end line of credit may be used for multiple purposes. For example, a closed-end mortgage loan that is a refinancing under § 1003.2(p) may also be a home improvement loan under § 1003.2(i) and be used for other purposes if the refinancing is a cash-out refinancing...

The CFPB has said, in response to inquiries from me and others, that they do not list cash-out refi for business because it is not necessary to list it (in their opinion).

Per the CFPB, Cash-out refi is simply a subset of refi. Business purpose can be cash out refi although it is unusual because that is not typical business underwriting. Cash out refi pricing most often can occur in business purpose secondary market rental real estate loans.

So it's an example of another squishy rule, and the only place that you would know that cash-out refinance is legit for a business is in the FIG. I'm glad I'm not a HMDA filer.