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#2264981 - 01/21/22 03:16 PM HMDA Loan Purpose Cashout Refi to buyout ex-spouse
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San Antonio, TX
In the past, when an applicant applied for a cash-out refi to payoff/buyout the ex-spouse after a divorce, we interpreted this as a multi-purposed application (Cash-out Refi and Purchase), and we reported the Loan Purpose as Purchase according to the HMDA pecking order. After new Compliance personnel was hired, they mentioned that new guidance was provided a few years ago that clarified this scenario should be reported as a Cash-out Refi as the ex-spouse was already an owner previously. They provided the following as their reasoning:

4. Same borrower. Section 1003.2(p) provides that, even if all of the other requirements of
§ 1003.2(p) are met, a closed-end mortgage loan or an open-end line of credit is not a refinancing unless the same borrower undertakes both the existing and the new obligation(s). Under § 1003.2(p), the “same borrower” undertakes both the existing and the new obligation(s) even if only one borrower is the same on both obligations. For example, assume that an existing closed-end mortgage loan (obligation X) is satisfied and replaced by a new closed-end mortgage loan (obligation Y). If borrowers A and B both are obligated on obligation X, and only borrower B is obligated on obligation Y, then obligation Y is a refinancing under § 1003.2(p), assuming the other requirements of § 1003.2(p) are met, because borrower B is obligated on both transactions. On the other hand, if only borrower A is obligated on obligation X, and only borrower B is obligated on obligation Y, then obligation Y is not a refinancing under § 1003.2(p). For example, assume that two spouses are divorcing. If both spouses are obligated on obligation X, but only one spouse is obligated on obligation Y, then obligation Y is a refinancing under § 1003.2(p), assuming the other requirements of § 1003.2(p) are met. On the other hand, if only spouse A is obligated on obligation X, and only spouse B is obligated on obligation Y, then obligation Y is not a refinancing under § 1003.2(p). See § 1003.4(a)(3) and related commentary for guidance about how to report the loan purpose of such transactions, if they are not otherwise excluded under § 1003.3(c).


When I read through, I am wondering if there is a caveat to this situation. It appears that this transaction describes a refinance that is only removing the ex-spouse. It doesn’t appear to go into the one spouse also receiving cash out from the transaction to buy out the ex-spouse. To me, it appears such would be a multiple purpose transaction that would still be reported as a purchase. I believe they were trying to clarify that simply refinancing to remove the ex-spouse is not equivalent to purchasing the property from the ex-spouse. I believe cash out to buy them out changes that.

After mentioning this to that individual, I then received this response…

I'd tend to view it as a cash-out refinance as it's still paying off an existing loan to the same borrower but with cash out. I guess my thought is that the borrower already has ownership in the dwelling, so it doesn't appear to fall under the intent (or what I believe to be the intent) for a home purchase (either by definition or commentary.)

There have been two very distinct positions on this for many years, and we should stick to one (either purchase or refinance) and apply that consistently. Let’s continue to think about what may work best at here and document our position.


All this being said, what would be the take of the experts from the Bankers Online. Thanks for looking into this and getting back to me.

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#2264991 - 01/21/22 04:44 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Dan Persfull Offline
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For example, assume that two spouses are divorcing. If both spouses are obligated on obligation X, but only one spouse is obligated on obligation Y, then obligation Y is a refinancing under § 1003.2(p), assuming the other requirements of § 1003.2(p) are met.

IMHO I think this pretty well identifies the transaction as a refinancing. Why would I refinance the loan in my name only if my ex isn't signing the property over to me, regardless if a cash-out or no cash-out?
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#2264996 - 01/21/22 05:02 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Truffle Royale Offline

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Dan, you've come over to the Dark Side! Was it the cookies?

As google can show you, Dan and I have gone back and forth about this scenario for years.
I've always reported paying off an ex as a refi.
Fed examiners have always been ok with it because borrower is paying off and replacing the obligation.

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#2264997 - 01/21/22 05:27 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Dan Persfull Offline
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Actually I changed my stance when the above referenced cite was posted with the changes to HMDA.
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#2265000 - 01/21/22 06:07 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
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Ok...thank you both for your feedback. So you're saying that although the cash-out is documented as being used to purchase the ex-spouse's portion of the home, because the Applicant/Borrower was on the Deed of Trust previously, it must be reported as a cash-out refi (regardless of the purchase/buyout component)...this all in light of the new guidance? It would have been a different case prior to 2018...?

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#2265032 - 01/21/22 10:49 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Dan Persfull Offline
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Short answer - yes.
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#2265825 - 02/04/22 04:13 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
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We have had many discussions about interest buy-out scenarios on other threads in the HMDA forums. I am one that generally believes they are "Purchases," while others tend to consider them "Refinances." You can find some of those other discussions for your reading pleasure smile. However, in situations where divorce is involved, then I do lean towards refinance because of the specific language in the Official Interpretation.

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#2265827 - 02/04/22 04:24 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Dan Persfull Offline
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I am one that generally believes they are "Purchases," while others tend to consider them "Refinances." You can find some of those other discussions for your reading pleasure.


I too use to be in that camp until the official citation above was released. Now if the current borrower has an ownership interest in the property and they are also a borrower on the existing loan then the new loan is reported as a refinance. If the current borrower has ownership in the property but is not a borrower on the current loan being satisfied then the loan is reported as "other'
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#2265833 - 02/04/22 05:55 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Adam Witmer Offline
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I've long been in the camp with Truffle as my thought has always been that prior owners already own the house.

Originally Posted by pp1865
being used to purchase the ex-spouse's portion of the home
I guess I view it more of giving the ex-spouse their portion of the equity, rather than "purchasing the ex-spouse's portion of the home" as I've never seen an arrangement where the husband owns only the first floor of a single family dwelling while the wife only owns the second floor. smile

That said, I have seen examiners fall in both camps (mainly before the 2018 commentary), so I think this guidance you received is great: we should stick to one (either purchase or refinance) and apply that consistently.
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#2266002 - 02/08/22 06:10 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Dan Persfull
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Originally Posted by Dan Persfull
I am one that generally believes they are "Purchases," while others tend to consider them "Refinances." You can find some of those other discussions for your reading pleasure.


I too use to be in that camp until the official citation above was released. Now if the current borrower has an ownership interest in the property and they are also a borrower on the existing loan then the new loan is reported as a refinance. If the current borrower has ownership in the property but is not a borrower on the current loan being satisfied then the loan is reported as "other'

Yeah, I don't agree with the "go down the waterfall theory to Other."

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#2275775 - 09/20/22 02:01 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
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I found something in the preamble while looking into a Construction-Perm situation with an existing dwelling (different topic) that supports such equity buyouts are "Purchase" coded for HMDA:

Two commenters requested additional guidance about the definition of home purchase loan. One commenter stated that additional guidance is necessary because there are several ways to transfer property ownership to third parties, not all of which are called a “purchase.” The commenter did not specify the other methods it was referencing. As discussed, comment 2(j)-5 provides guidance about two additional methods of title transfer. The Bureau can address additional scenarios in the future, if necessary. Another commenter requested guidance about whether a loan to one sibling to purchase half of another sibling's home, which the other sibling owns outright, is a reportable home purchase loan or a refinancing when the loan is secured by the portion of the home being purchased. Based on the details provided, such a transaction is reportable, because it is a dwelling-secured loan and is not excluded under § 1003.3(c). Because it is for the purpose of purchasing a dwelling, and it does not satisfy and replace an existing, dwelling-secured debt obligation, it is a home purchase loan but it is not a refinancing. See the section-by-section analysis of § 1003.2(p).

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#2275779 - 09/20/22 02:10 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
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That is not the same as an equity buyout, that is talking about me and my sister. My sister owns 100% of the home. I take out a loan to buy half interest in my sisters home. They say that is a purchase.

In TRID, an equity buyout would be a home equity loan as the CFPB said in the preamble to TRID, one cannot buy something which they already own. That would be true unless the remaining owner was also refinancing an existing lien on the property.
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#2275896 - 09/21/22 09:17 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
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Yes, we are talking HMDA here though, not TRID. "Dwelling" has a different meaning in those Regulations as well.

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#2275908 - 09/22/22 12:22 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
rlcarey Online
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My point was what you posted has nothing to do with an equity buy out. An equity buy out is when multiple parties own the property and one party is buying out one of the other owners. Your citation has nothing to do with that scenario. In that scenario within that citation, under TRID, it would also be a purchase loan.
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#2276830 - 10/19/22 08:59 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse rlcarey
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Originally Posted by rlcarey
My point was what you posted has nothing to do with an equity buy out. An equity buy out is when multiple parties own the property and one party is buying out one of the other owners. Your citation has nothing to do with that scenario. In that scenario within that citation, under TRID, it would also be a purchase loan.

What you call it doesn't matter, lol. However you want to use the terminology doesn't matter, imho, for the purposes of HMDA. You have a situation where a person is buying a portion of a dwelling. If you don't want to call the portion here "equity," then fine. But, the end result is similar. The only thing that differs is your terminology solely includes portion purchases between existing owners.
Last edited by Compliance NABW; 10/19/22 09:00 PM.
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#2276835 - 10/19/22 09:25 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
rlcarey Online
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". Another commenter requested guidance about whether a loan to one sibling to purchase half of another sibling's home, which the other sibling owns outright, is a reportable home purchase loan or a refinancing when the loan is secured by the portion of the home being purchased. Based on the details provided, such a transaction is reportable, because it is a dwelling-secured loan and is not excluded under § 1003.3(c). Because it is for the purpose of purchasing a dwelling, and it does not satisfy and replace an existing, dwelling-secured debt obligation, it is a home purchase loan but it is not a refinancing."

All I am saying is that this example in the preamble has nothing to do with a situation in which two people (A&B) own a property and A wishes to buy B's interest in the property. You are using this apples example to try to prove an orange is an apple. It is not on point.
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#2276929 - 10/21/22 05:58 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
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I don't think it is apples to oranges at all. I see it more like Granny Smith vs. Pink Lady. Or maybe an apple vs. a pear, lol, but, anyways I guess we can agree to disagree on that.

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#2276931 - 10/21/22 06:19 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Dan Persfull Offline
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I have to side with Randy 100% on this topic. Equity buyouts where both parties own the property at the time of buyout is not a home purchase.

a loan to one sibling to purchase half of another sibling's home, which the other sibling owns outright,

It appears you are disregarding the owns outright reference.

and the last part of that reference:

is a reportable home purchase loan or a refinancing when the loan is secured by the portion of the home being purchased.
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#2277468 - 11/02/22 01:56 PM Re: HMDA Loan Purpose Cashout Refi to buyout ex-spouse Help! Compliance
Adam Witmer Offline
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I agree with Randy and Dan. The example in the preamble is a purchase because you have a non-owner buying into a property. The other example is not a purchase because both people already have an ownership in the property. Trying to compare these two things is like trying to compare apples to road apples (for those of us from Amish country).
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