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 again supplementing our previous announcement 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 determine if at least one of the existing obligations on the subject property is being satisfied, the logic will be modified to check if:
- At least one debt on the subject property will be 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 one of the corresponding liabilities is satisfied upon completion of the transaction, the Purpose will be considered a Refinance. Previously the logic would only trigger “Refinance” if all debts on the subject property were to be paid off.
In addition, to allow for any unique situations that may not be covered above, if “Purchase” is not triggered for Purpose, and the TRID Home Equity Indicator (field 97657) is set to “Yes”, “Home Equity Loan” will print for Purpose. The TRID Home Equity Indicator will not be set globally, but will be available for import, prompt, or custom mapping.
The logic surrounding the “Liability after Foreclosure” text on the Loan Estimate will be modified as well, to only print the section if “Refinance” prints for Purpose under the updated logic outlined above, as required by 12 CFR § 1026.37 (m) (7):
- Liability after foreclosure.
If the purpose of the credit transaction is to refinance an extension of credit as described in paragraph (a)(9)(ii) of this section, a brief statement that certain State law protections against liability for any deficiency after foreclosure may be lost, the potential consequences of the loss of such protections, and a statement that the consumer should consult an attorney for additional information, labeled “Liability after Foreclosure.”
These enhancements to the Loan Estimate and the Closing Disclosure will be in place on December 29, 2015. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.