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I would like to ask what is meant by unconditionally obligated and subject to conditions in regards to loan purpose OTHER? 1003.4(a)(3) says “also requires an institution to report a covered loan or application as for a purpose other than home purchase, home improvement, refinancing, or cash-out refinancing if it is a REFINANCING but, under the terms of the agreement, the financial institution was unconditionally obligated to refinance the obligation subject to conditions within the borrower’s control”.
I am asking because I believe Indiana has a law for loans not secured by a first lien on real estate that requires a FI to refinance a balloon payment when it comes due under terms no less favorable then the original terms.
I am concerned about HELOCs (often 2nd lien) and HMDA purpose. I am also just learning of this Indiana law and wanting to make sure I am understanding what is meant here.
Sometimes the original Credit Agreement and Disclosure will have an extra balloon payment paragraph. The extra balloon payment paragraph will read something like this: Balloon Payment. Your Credit Line Account Is payable in full upon maturity In a single balloon payment. You must pay the entire outstanding principal, interest and any other charges then due. Unless otherwise required by applicable law, we are under no obligatlon to refinance the balloon payment at that time. You may be required to make payments out of other assets you own or find a lender, which may be us, willing to lend you the money. If you refinance the balloon payment, you may have to pay some or all of the closing costs normally associated with a new credit line account, even If you obtain refinancing from us.
In cases where that Balloon Payment wording is missing from the original Credit Agreement and Disclosure, would this be an example of when the financial institution would have been obligated to refinance, and therefore, the loan purpose would be marked as other instead of refinance (if no other purpose applies)?
Interesting dilemma.
Typically the requirement to unconditionally refinance an obligation subject to conditions within the borrower’s control is triggered by language similar to the following, ” We will refinance your balloon balance on terms no less favorable than your original terms if you are current on your loan payments, have submitted a current financial statement, and your credit report does not evidence any decline in your financial position.”
The extra balloon payment paragraph you add on some loans is used by many institutions on balloon loans. You may want to discuss with counsel whether including that language infers with your requirement under state law.
If your institution is unconditionally obligated to refinance, under state law or by contract, the loan would be reported for HMDA using the “Other” purpose.
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