4301.4: "No cash-out" refinance Mortgages (10/27/18)

A "no cash-out" refinance Mortgage must meet the applicable requirements in Sections 4301.2 and 4203.4.

A "no cash-out" refinance Mortgage is a Mortgage for which the proceeds may be used only to:

Pay off the first Mortgage, regardless of its age; for Construction Conversion Mortgages and Renovation Mortgages, the amount of the Interim Construction Financing secured by the Mortgaged Premises is considered an amount used to pay off the first Mortgage
Pay off any junior liens secured by the Mortgaged Premises, that were used in their entirety to acquire the subject property
Pay related Closing Costs
Disburse cash out to the Borrower (or any other payee) up to the greater of 1% of the new refinance Mortgage or $2,000
Pay off the outstanding balance of a land contract or contract for deed if the requirements in Section 4404.1 are met
Pay off a Property Assessed Clean Energy (PACE) or PACE-like obligation, subject to the additional requirements in Section 4301.8

In the event there are remaining proceeds from the "no cash-out" refinance Mortgage after the proceeds are applied as described above:

The Mortgage amount must be reduced, or
The excess amount must be applied as a principal curtailment to the new refinance Mortgage at closing and must be clearly reflected on the Settlement/Closing Disclosure Statement.

Under no circumstances may cash disbursed to the Borrower (or any other payee) exceed the maximum permitted for "no cash-out" refinance Mortgages.

(a) Secondary financing

The Borrower is not required to satisfy outstanding junior liens secured by the Mortgaged Premises, provided that the junior lien meets the requirements of Section 4204.1 and/or 4204.2, as applicable.

(b) Special documentation requirementsIf a junior lien was paid off as part of the "no cash-out" refinance transaction, the Seller must maintain documentation in the Mortgage file demonstrating that the full amount of the lien was used for the purchase of the subject property.

(c) Special requirements for Freddie Mac–owned "no cash-out" refinance Mortgages

If the Mortgage being refinanced is a First Lien, conventional Mortgage currently owned by Freddie Mac in whole or in part or securitized by Freddie Mac, the "no cash-out" refinance Mortgage may be eligible for higher loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratios as provided in Section 4203.4, provided that the requirements of this section and Section 4301.2, as applicable, are met and:

The proceeds of the new refinance Mortgage may not pay off a junior lien secured by the Mortgaged Premises, and
Proof of the Freddie Mac loan number of the existing Mortgage is provided in the Mortgage file.

(d) Delivery and pooling

See Section 6302.16 for delivery and pooling requirements for "no cash-out" refinance Mortgages.See Section 6302.35 for delivery and pooling requirements if a principal curtailment is applied to the "no cash-out" refinance Mortgage at closing.