If a borrower is refinancing a mortgage, sometimes our bank will do 2 loans to accomplish this, one in residential mortgage and one in consumer. Let’s say the current mortgage is $250,000. Residential approves a loan for $200,000 and consumer approves a loan for $50,000. Both of these loans would close on the same day, at the same time. Both the old loan and the 2 new loans are to the same borrower and are secured by liens on dwellings.
For HMDA reporting purposes, is either, or both, of these new loans considered a refinance or are neither one reportable?
The definition for refinancing is a new obligation (not obligations) that satisfies and replaces an existing obligation by the same borrower.
One of the new loans by itself is not enough to satisfy the existing obligation. I attended a class taught by Deborah Henderson of PBS. I asked her this question and she said that to be a refinance, one note must pay off one note. So if the 2 loans close on the same day, neither is reportable. If they close on different days, the first closed one is a paydown and the 2nd (assuming it completely satisfies) is a true refinance. I agree with her assessment, however my supervisor does not. She thinks that at least one of them should be reportable but she is not 100% sure which one. She thinks we should report the larger one.
Could you please give us a 3rd opinion on this question?
Both Deborah, who I hired into her current position many years ago, and your supervisor have valid points. Deborah’s analysis relies on a strict reading of the definition. Your supervisor appears to be looking at the substance of the transaction. Unfortunately my opinion, Deborah’s opinion and your supervisor’s opinion do not count. The issue is not addressed in Regulation C, the official staff commentary or the FAQs. You should run this by your examiner to find out how he/she wants it reported.