According to 12 CFR § 1026.37(a)(9), there are four types of purposes which can be disclosed in the “Loan Purpose” section on page 1 of the LE. These are “Purchase”, “Refinance”, “Construction”, and “Home Equity Loan”.
According to these regulations, each purpose must print under the following conditions:
- If the loan is for the purpose of financing the acquisition of the subject property, then “Purchase” should be disclosed.
- If the loan is not a “Purchase,” but its proceeds will be used to refinance an existing, closed-end obligation secured by the subject property, then “Refinance” should be disclosed.
- If the loan is not a “Purchase” or a “Refinance,” but its proceeds will be used to finance the initial construction of a dwelling (i.e. a new construction, not a renovation) on the subject property, then “Construction” should be disclosed.
- If the loan is not a “Purchase,” a “Refinance,” or a “Construction,” then it should be disclosed as a “Home Equity Loan.”
This same logic applies to the same section on the CD (see Ibid. § 1026.38[a][ii]). We are slightly modifying the logic in our documents to more accurately reflect the appropriate loan purpose, per the CFPB instructions.
Please note that, due to Regulation Z’s specific formulas and definitions which must be complied with, the loan purpose on the LE may not coincide with the purpose disclosed on FNMA Form 1003, since FNMA/FHLMC has different definitions.
For example, “Fannie Mae also considers the current owner’s placement of financing on a property that is not financed as a refinance transaction” (FNMA 2015 Selling Guide E-3-18). However, under TRID, such a transaction would most likely be disclosed as a “Home Equity Loan,” since the property is already owned (thus not a “Purchase”), does not refinance an existing obligation (thus not a “Refinance”), and as far as this example goes, does not finance a new construction (thus not a “Construction”).
These changes will take effect on Saturday, November 7, 2015. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.