4301.6: Special purpose cash-out refinance Mortgages (07/06/17)

A cash-out refinance Mortgage where the owner of a property uses the proceeds of the refinance transaction to buy out the equity of a co-owner is a special purpose cash-out refinance Mortgage. A special purpose cash-out refinance Mortgage must meet the applicable requirements of Section 4301.2, the loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HELOC) TLTV (HTLTV) ratio requirements for cash-out refinance Mortgages in Sections 4203.4, 5703.3, and 4603.3, and the minimum Indicator Score requirements in Exhibit 25, Mortgages with Risk Class and/or Minimum Indicator Score Requirements.

The loan amount of a special purpose cash-out refinance Mortgage is limited to amounts used to buy out the equity of the co-owner, which may include:

Paying off the first Mortgage, regardless of age
Paying off junior liens secured by the Mortgaged Premises
Paying related Closing Costs

In addition, the following conditions must be met:

The Borrower and the co-owner receiving the buy-out proceeds must have jointly owned the property for a minimum of 12 months prior to the initial loan application (parties who inherited an interest in the property are exempt from this requirement)
The Borrower and the co-owner receiving the buy-out proceeds must provide evidence that they occupied the subject property as their Primary Residence (parties who inherited an interest in the property are exempt from this requirement)
The Borrower and the co-owner receiving the buy-out proceeds must provide a written agreement, signed by all parties, stating the terms of the property transfer and the disposition of the proceeds from the refinancing transaction
The Borrower who retains sole ownership of the property may not receive any of the proceeds from the refinance transaction

(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 requirements

The Seller must retain the following in the Mortgage file:

Documentation evidencing that the Borrower and the co-owner jointly occupied the Mortgaged Premises as their Primary Residence, if applicable
A copy of the written agreement stating the terms of property transfer and the disposition of the refinance proceeds

(c) Credit Fees in Price
The cash-out refinance Credit Fee in Price indicated on Exhibit 19, Credit Fees in Price, will not be assessed or billed to a Seller for a special purpose cash-out refinance Mortgage.

(d) Delivery and pooling
See Section 6302.16 for delivery and pooling requirements for special purpose cash-out refinance Mortgages.