Loan Purpose Has Slight Modification For 2018 HMDA Rules

There is a slight modification when it comes to reporting the Loan Purpose under the new HMDA rules. It still must be reported whether the loan was a Home Purchase, Home Improvement or Refinancing. Two additional data points have been added and that is for “other” and for Cash-Out refinancing. The rule does not provide a set definition as to what would constitute as a Cash-Out refinancing, it all depends upon the financial institution’s policies regarding these types of loans.  The “other” category is to be used for consumer purpose transactions that are secured by a dwelling that have a purpose other than home, purchase, home-improvement, refinancing or Cash-Out refinancing.

There can be some confusion as to whether a loan is HMDA reportable. For refinances, not all loans are going to be considered reportable for HMDA purposes. If the financial institution was legally obligated to refinance the loan in question then it would not be considered to be reportable. Then there are loans that are primarily for commercial purposes. If the loan is for a Home Improvement, home purchase, or a refinancing, then that loan would be considered to be reportable.

There has been a modification as to what is considered to be a Home Improvement loan. Previously under the old HMDA rule, a loan did not necessarily have to be secured by a dwelling in order to be classified as Home Improvement. However, under the regulation that takes full effect in 2018, only the Home Improvement loans that are secured by a dwelling are to be reported.

The other modification involves multiple purpose loans. Loans that are made for home purchases have not changed; if any part of the loan is for the purchase of a dwelling, then the loan must be reported as a home purchase. For a refinance or Cash-Out refinance loan, if the proceeds of the loan are for a refinance in addition to another purpose (Home Improvement, medical expenses, etc.), then the loan would be reported as being a refinance. This change would replace current HMDA reporting practices as a Home Improvement loan no longer has priority over refinances.

The CFPB has recently proposed a correction when it comes to this data point. They are proposing to allow financial institutions the option not to report the loan purpose of a purchased loan if it was originated before January 1, 2018. This is due to possible confusion that could occur when an institution is trying to decide whether the purchased loan is reportable as simply a refinance or if it is a Cash-Out refinance.

 

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