We have a cash-out refi transaction on a home owned free and clear (no liens). The disbursed funds are not to improve the subject property. They will be used to improve their second home. Would we report this as 2-HI or 4-Other? Thanks!

It is still a home improvement loan.

Official Interpretation
Paragraph 4(a)(9)
1. Multiple properties with one property taken as security. If a covered loan is related to more than one property, but only one property is taken as security (or, in the case of an application, proposed to be taken as security), a financial institution reports the information required by § 1003.4(a)(9) for the property taken as or proposed to be taken as security. A financial institution does not report the information required by § 1003.4(a)(9) for the property or properties related to the loan that are not taken as or proposed to be taken as security. For example, if a covered loan is secured by property A, and the proceeds are used to purchase or rehabilitate (or to refinance home purchase or home improvement loans related to) property B, the institution reports the information required by § 1003.4(a)(9) for property A and does not report the information required by § 1003.4(a)(9) for property B.

I'd treat this the same as doing a refi on current property to purchase another in the future.
You know what the purpose is so report it as such, namely Home Improvement.
Other – The catch all category of “other” will be used for consumer purpose transactions with a purpose other than home purchase, home improvement, refinancing, or cash-out refinancing.

" For example, if a covered loan is secured by property A, and the proceeds are used to purchase or rehabilitate (or to refinance home purchase or home improvement loans related to) property B, the institution reports the information required by § 1003.4(a)(9) for property A and does not report the information required by § 1003.4(a)(9) for property B."

So are you saying you interpret this to mean that despite Property B being the one improved through the proceeds from Property A, one should attribute and report the home improvement action on the HMDA LAR for Property A?

Thanks!

Correct

If a compliance expert takes out a loan from your bank secured by his home in Texas with the stated intent to make improvements to my home in Massachusetts, you report information on the Texas home, not mine.