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Beginning in 2018, the cash out refi purpose that has been added to HMDA has caused some confusion for our in house loans. We do NOT have a cash out refi product for in house loans. For example, if you get a 5/1 ARM loan in house the rate and terms of the loan will be the same regardless if the borrower receives a cash out or not. From the commentary I was under the impression that if you do not have a cash out refi loan product then you should report all loans as a refi. Now I am hearing that we should create a cash out threshold, for example $5,000, so if the borrower receives at least $5,000 back then we should code the loan as a cash out refi. What are your thoughts on this? Should we report everything as a refi since we do not have a cash out product or should we set a threshold for the amount of funds received by the borrower?
HMDA does not require you to develop a product that you may not recognize in your institution. If you do not designate a refinance as a “cash-out” refi, there is no requirement to do so.
1003.4(a)(2)-2. Purpose—refinancing and cash-out refinancing. Section 1003.4(a)(3) requires a financial institution to report whether a covered loan is, or an application is for, a refinancing or a cash-out refinancing. A financial institution reports a covered loan or an application as a cash-out refinancing if it is a refinancing as defined by § 1003.2(p) and the institution considered it to be a cash-out refinancing in processing the application or setting the terms (such as the interest rate or origination charges) under its guidelines or an investor’s guidelines.
Example: iii. Assume a financial institution does not distinguish between a cash-out refinancing and a refinancing under its own guidelines, and sets the terms of all refinancings without regard to the amount of cash received by the borrower at closing or account opening, and does not offer loan products under investor guidelines. In this example, the financial institution reports all covered loans and applications for covered loans that are defined by § 1003.2(p) as refinancings for purposes of § 1003.4(a)(3).
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