Is Acquisition by One Spouse of the Interest of the Other Spouse and Assumption of the Existing Mortgage Loan HMDA-Reportable?

Issue/Inquiry

A couple divorces, and one spouse buys the interest of the other spouse in their former residence. An Assumption and Release Agreement is entered into with the Bank, allowing the one spouse to assume the existing mortgage loan and releasing the other spouse from liability.

Is this transaction HMDA-reportable?

Response Summary

In order to be HMDA-reportable, there would need to be a new extension of credit. No new extension of credit was made, and the assumption of the existing mortgage loan by one of the spouses does not satisfy the definition of a home purchase loan. Likewise, there was no new obligation satisfying and replacing the existing obligation, so it would not be considered a refinancing.

Response Detail

Under Regulation C, which implements the Home Mortgage Disclosure Act (“HMDA”), a financial institution is required to collect data regarding applications for covered loans that it receives, covered loans that it originates, and covered loans that it purchases for each calendar year. A “covered loan” is a closed-end mortgage loan or an open-end line of credit that is not an excluded transaction. Closed-end mortgage loans and open-end lines of credit are extensions of credit that are secured by a dwelling. 12 CFR §1003.2(d),(e),(o);4(a).

With respect to a closed-end mortgage loan, an “extension of credit” is the granting of credit only pursuant to a new debt obligation. Generally, if a transaction modifies, renews, extends, or amends the terms of an existing debt obligation, but the existing debt obligation is not satisfied and replaced, the transaction is not a closed-end mortgage loan because there has been no new extension of credit. Official Interpretations, 1003.2(d) – 2.

Under Regulation C, a “home purchase loan” is a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of purchasing a dwelling. 12 CFR §1003.2(j). In this case, there was no extension of credit from the Bank to the acquiring spouse, but rather only the assumption of the existing obligation. Therefore, the transaction would not be considered a home purchase loan since, without an extension of credit, it would not be a closed-end mortgage loan or open-end line of credit.

The acquiring spouse did assume the existing obligation. The official commentary provides the following regarding assumptions:

In this case, one spouse has purchased the interest of the other spouse in the dwelling and entered into an Assumption and Release Agreement with the Bank. The acquiring spouse has received a transfer of the other spouse’s interest in the title and is, in a sense, a new obligor since the original obligors were both spouses; however, the acquiring spouse has not received a loan to purchase the interest, but rather has simply assumed the existing obligation after the transfer of title. This relates to the part of the above commentary beginning with “On the other hand”. The transfer is not considered a purchase as the acquiring spouse did not assume the existing obligation in order to purchase the property.

The transfer would not be a considered a refinancing either, which is a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower. 12 CFR §1003.2(p). As noted, there is no new obligation satisfying the existing obligation and, in any case, the borrower is not the same, as the transaction concerns only one of the two people on the existing obligation.

This entry was posted on Monday, December 10th, 2018 at 6:00 am.