Is this scenario a "Purchase" or a "Refinance"?

The real estate is free & clear (no mortgage). The husband is buying out his wife (as a result of a divorce). The house will be used as security/collateral.

Because it is currently F&C, there is no debt to refi and he is buying her half, I'd call it a pruchase.

At first, I agreed with Andy. The husband is purchasing the wife's 1/2 undivided interest.

However, the following is a quote from the Reg Z Commentary on the definition of a residential mortgage transaction from another thread on this subject:

"A residential mortgage transaction finances the acquisition of a consumer's principal dwelling. The term does not include a transaction involving a consumer's principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title."

That makes the transaction a refinance, even though one spouse is acquiring the undivided ownership interest of the other.

We had this come up previously and in speaking with our regulator and TIL Section 226.2(a)(24)this is what we do:
For a new transaction involving a joint owner buyout of a previously acquired dwelling, the purpose should NOT be reported as a purchase. If there is a lien on the property, the purpose should be a refinance if one or more of the same borrowers had previously purchased the dwelling. If there is not a lien on the joint owner property it should be considered an other consumer purpose loan or whatever classification the applicable loan department wants to use if one or more of the same borrowers previously purchased the dwelling. EXCEPTION - if three siblings inherited a house from the parents it would be permissable to treat this loan as a purhcase since none of the new borrowers had previously purchased this particular property.

I'm still not convinced. While I was aware of Paul's cite, Paul and Janet convince me easily under "Z". But I was looking more at this as a "C" question. Under HMDA a refi appears to require an existing debt. And Janet has some great thoughts, but HMDA categories are pretty limited. The process of elimination is how I arrived at my answer.

I think the two regulations could have different answers. (Tell me if I am wrong.) What reg was the original question about?

Andy,

I agree with you - I was purely looking at it from a Reg Z standpoint. For HMDA purposes, I believe that you could make an argument that it does not fit in either category. It is not a loan for the purchase of the home, since the borrower already partially owns the property and it is not a refinace because there is no existing obligation being satisfied.

According to the famous Getting it Right book it states - A refinancing of a loan is the satisfaction and replacement of an existing oblgation by a new obligation BY THE SAME BORROWER. So even if there was an existing debt, since the names are changing from joint to individual, it would be a purchase under HMDA.

So what we have is a purchase for HMDA and a refinance for Reg Z.

Sounds like an exam exception waiting to happen.

I am thinking that the best thing to do is treat it as both a purchase and a refi - preliminary TIL and GFE within three business days, and a Right to Cancel at closing.
Report the loan as a purchase on the LAR.

Good thing we answered this one. Otherwise the applicant may not have qualified and we'd just send an adverse action notice. Purchase, refi, doesn't matter there.