To further clarify the logic of defining Purpose for the Loan Estimate and Closing Disclosure pursuant to 12 CFR § 1026.37(a)(9), we are supplementing our previous announcement on the matter with more specifics pertaining to the circumstances under which a loan is considered a “Refinance”.
12 CFR § 1026.37(a)(9)(ii) defines a Refinance loan purpose as follows:
If the credit is not for the purpose described in paragraph (a)(9)(i) of this section [i.e., “Purchase”], and if the credit will be used to refinance an existing obligation, as defined in § 1026.20(a) (but without regard to whether the creditor is the original creditor or a holder or servicer of the original obligation), that is secured by the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Refinance.”
This is further defined in Ibid. § 1026.20(a):
A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer.
Given these conditions, the loan purpose is labeled as “Refinance” when a loan satisfies both of the following criteria:
- The previous Loan Purpose is not HELOC (must be a refinance of a closed-end obligation).
- The “Amount Existing Liens” for refinance loans is populated on the 1003 in Section II (field 27057), or there is a mortgage unpaid principal balance (field 6133), or the subject property does not have a negative unpaid balance (field 97718).
In order to further ensure that all of the existing obligations on the subject property are satisfied, the logic will be further enhanced by the addition of a third qualification:
- Any and all debts on the subject property are fully paid off.
This condition will be checked in the system by comparing all the Liability Real Estate Owned IDs against the Subject Property REO IDs. If the IDs are the same and the corresponding liability is not satisfied upon completion of the transaction, the Purpose will not be considered a Refinance.
This enhancement applies to both the Loan Estimate and the Closing Disclosure and will be in place on December 2, 2015. If you have any questions or concerns about this change, please contact Client Support at 1.800.497.3584.