Q: Bank XYZ has a new commercial transaction where a closed-end loan is paying off a line of credit. The line of credit is dwelling secured and the new loan will also be dwelling secured but with different collateral. It will, however, be the same borrower on both loans. Since this is not a purchase and there are no new funds to consider it a home improvement, would this still be a reportable refinance for HMDA purposes with the new loan having different collateral?
- For HMDA purposes, it would be a refinance if it satisfies and replaces an original debt with the same borrower. There is not a requirement that the collateral remain the same, only the borrower. However, the original debt had to have been secured by a dwelling as well.
(p) Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/2/#p
- Existing debt obligation. A closed-end mortgage loan or an open-end line of credit that satisfies and replaces one or more existing debt obligations is not a refinancing under § 1003.2(p) unless the existing debt obligation (or obligations) also was secured by a dwelling. For example, assume that a borrower has an existing $30,000 closed-end mortgage loan and obtains a new $50,000 closed-end mortgage loan that satisfies and replaces the existing $30,000 loan. The new $50,000 loan is a refinancing under § 1003.2(p). However, if the borrower obtains a new $50,000 closed-end mortgage loan that satisfies and replaces an existing $30,000 loan secured only by a personal guarantee, the new $50,000 loan is not a refinancing under § 1003.2(p). See § 1003.4(a)(3) and related commentary for guidance about how to report the loan purpose of such transactions, if they are not otherwise excluded under § 1003.3(c).
https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1003/Interp-2/#2-p-Interp-3
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