I'm working on coming up with a cheat sheet for my loan staff on Loan Purpose. I just had a couple scenarios I wanted to ask about to make sure I understand the rules correctly. From reading over rules it appears the collateral plays a role in determining purpose so I wanted to make sure I was on the right path.

1) If we were refinancing a consumer purpose loan secured by investment property with a new consumer purpose loan now secured by their primary residence....The purpose would be "Home Equity" since the primary residence was not the collateral on the loan being paid off correct?

2) If we are doing a loan for the initial construction of a new dwelling, but we are taking their current residence as collateral.....The purpose would be "Home Equity" since the property taken as collateral is not the property they are building their new home on correct?

1. Agree
2. Agree

This is a very tricky concept to explain to the front line. I told them it was going to take a lot more thought than previously.

What if the loan amount is $200,000 and the purpose is to payoff $100,000 existing first mortgage and do renovations totaling $100,000?

Remember - you have to take into account the collateral on the loan and there is a hierarchy (spelling?). And I currently can't put my fingers on my list; however I believe 'Refinance' would trump 'Home Equity'.

That will still be a refinance.

i) Purchase. If the credit is to finance the acquisition of the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Purchase.” MUST BE TO PURCHASE THE PROPERTY SECURING THE LOAN

(ii) Refinance. If the credit is not for the purpose described in paragraph (a)(9)(i) of this section, 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.” MUST BE REFINANCING EXISTING DEBT - DOESN'T MATTER HOW MUCH IS A REFI; IF ANY IS A REFI, CLASSIFY AS REFI

(iii) Construction. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) or (ii) of this section and the credit will be used to finance the initial construction of a dwelling on the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for “Construction.” ONLY INITIAL CONSTRUCTION...NOT CONSTRUCTION FOR RENOVATIONS OR IMPROVEMENTS

(iv) Home equity loan. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) through (iii) of this section, the creditor shall disclose that the loan is a “Home Equity Loan.” ANYTHING THAT IS NOT A PURCHASE, REFI OR CONSTRUCTION.

So a construction loan that is purchasing the Lot, will be listed as Construction & not Purchase?

rockandawall...If the borrower is purchasing the lot, it's a purchase loan. If the borrower owns the land outright, it's construction. If the borrower has financed the lot already, it's a refinance.

And I believe that may be the biggest/hardest concept for the lenders here to understand.

That, and how purchasing a mobile home to set on an owned lot is a home equity loan...

Yeah, after spending all these years pounding the HMDA purposes into their brains now they have to understand another set of purposes. I don't think their little brains can take it.

In the original post (don't know how to put in the box) :
1) If we were refinancing a consumer purpose loan secured by investment property with a new consumer purpose loan now secured by their primary residence....The purpose would be "Home Equity" since the primary residence was not the collateral on the loan being paid off correct?

Wouldn't this be 'Refinance' under TRID? 1026.37(a)(9)(2) states ".... if the credit will be used to refinance an existing obligation, as defined in § 1026.20(a) ........that is secured by the property identified in paragraph (a)(6) [b] of this section, the creditor shall disclose that the loan is for a “Refinance.” (a)(6) references property securing this transaction. But existing obligation defined in 1026.20(a) is "Refinancings. 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." This does not reference the property being the same to be classified as a refinance - an existing obligation is satisfied and replaced. In the example posed by shea930, it appears to be the same obligation, just different collateral.

Just want to be clear on a situation like this. Maybe I'm wrong....

Not a refinance.

(ii) Refinance. If the credit is not for the purpose described in paragraph (a)(9)(i) of this section, 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.”

Read real close. IMO here's the "plain english" version:

If Loan B is not a purchase but will replace Loan A and Loan B is secured by the same property as Loan A, it's a refinace.

It's not my intention to beat a dead horse - but one more clarification please.

To be a refinance under TRID, the property must be the same? That's what you are saying, correct?

Thanks for your patience!!

Collateral of old and new loan must be the same...unlike HMDA.

(ii) Refinance. If the credit is not for the purpose described in paragraph (a)(9)(i) of this section, -(a((9)(i
) would be a 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), -

1026.20(a):
(a) Refinancings. 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. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing:.........


that is secured by the property identified in paragraph (a)(6) of this section,

(a)(6) Property. The address including the zip code of the property that secures or will secure the transaction, or if the address is unavailable, the location of such property including a zip code, labeled “Property.”




The creditor shall disclose that the loan is for a “Refinance.”

SO:

No part of the loan can be for purchase,
And it meets the definition of refi at 1026.20(a)
And it is secured by the same property being refinanced

It is a refinance for loan purpose purposes.

Help - my lending department is fighting me on the home equity purpose definition - according to them, "in order for the purpose of the loan to be Home Equity, the home has to be owned FREE and CLEAR. If there is a lien on the home, being paid off or not the transaction is considered a REFINANCE."
I don't know where this is coming from. I don't see that in 1026.37(a)(9)
We have a straight cash out home equity loan, second lien, not paying off any previous lien, and they insist that the purpose is refinance.

Any comments will be appreciated

Well, if the loan is not a purchase (not $1 is going to purchase a property), not a refi (no prior lien being paid off, it is not a construction (new construction of a dwelling), then it has to be an equity loan.

(9) Purpose. The consumer's intended use for the credit, labeled “Purpose,” using one of the following terms:

(i) Purchase. If the credit is to finance the acquisition of the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Purchase.”

(ii) Refinance. If the credit is not for the purpose described in paragraph (a)(9)(i) of this section, 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.”

(iii) Construction. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) or (ii) of this section and the credit will be used to finance the initial construction of a dwelling on the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for “Construction.”

(iv) Home equity loan. If the credit is not for one of the purposes described in paragraphs (a)(9)(i) through (iii) of this section, the creditor shall disclose that the loan is a “Home Equity Loan.”

Thank you Kathleen.
I was afraid I was missing some deeper meaning

No you are not. A refi must satisfy an existing obligation. If that doesn't happen, it is not a refi.

Same thing happens often with LO's calling a loan on a free and clear a refinance. Very irritating! !