A HMDA-reportable new mortgage satisfies and replaces the same borrower's existing $210,000 dwelling-secured obligation and provides another $40,000 for an extension. It is not a home-purchase loan, and the lender processes and prices it as a cash-out refinance under its guidelines. What loan purpose should it report?
Correct Answer
A) Cash-out refinancing
A. Report cash-out refinancing. The loan is both a refinancing and a home-improvement transaction, but not a purchase. Refinancing takes priority here. The stem expressly states that the lender processes and prices the loan as cash-out under its guidelines. Scope and exceptions: Receiving extra cash alone is not the entire classification test; the stated guideline treatment matters. Source: Comments 4(a)(3)-2–3 — https://www.consumerfinance.gov/rules-policy/regulations/1003/4/
Why This Is the Correct Answer
A. Report cash-out refinancing. The loan is both a refinancing and a home-improvement transaction, but not a purchase. Refinancing takes priority here. The stem expressly states that the lender processes and prices the loan as cash-out under its guidelines. Scope and exceptions: Receiving extra cash alone is not the entire classification test; the stated guideline treatment matters.
Why the Other Options Are Wrong
Option B: Home improvement because some proceeds improve the dwelling
It ignores the refinancing priority.
Option C: Both refinancing and home improvement as two separate loans
One loan is not split into two records for these purposes.
Option D: No report because cash-out refinances are excluded
Cash-out status does not itself create an exclusion.
Exam Tip
Apply the HMDA purpose hierarchy before focusing on how proceeds are spent.
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