Stupid question time:

Besides issues related to whether or not the investor would allow this to occur, is there any reason why a lender cannot refinance a home purchase loan later on the same day (rate and term refinance) that the purchase money loan closes? I cannot think of any reason under TILA, RESPA, ECOA, state law, etc., why you cannot have a fully documented purchase money loan followed by a fully documented refinance of the purchase money loan. Does anyone have any suggestions as to why this may not work?

I can't think of any issues, except some potential double costs. There may be funding/rescission issues depending on the state and closing in escrow.

It might be easier to have a modification rather than a second loan, especially if up-front fees, documentary stamps or intangible taxes are required. You're the guru on lending, but if new monies are needed, have a simultanious closing with a line of credit. Those generally are free to the borrower.

Howard,

The only things I can think of are the restrictions on refinancings not in the borrower's interests that are contained in HOEPA and some state lending laws. As far as I know, these would only cover loans meeting certain points and fees or APR thresholds.

But if there are additional fees included, there is an OCC guidance about predatory practices which might apply. It names frequent refinancings as one of the possibly predatory practices. So the question is, why the refinancing and what effect does it have on the borrower?

I know that some institutions do this and refinance rapidly in order to resell the loan (high appraisal value, low downpayment), but I think the underlying transaction has to be looked at here.

Kathy