Posted by Kirod9jx on 9/15/06 4:00pm
Msg #146399

"Purpose of Cash out Letter"....what does this mean?

I guess it's obvious but I got one in the loan package I'm doing tonight. It just has the borroweres name at top,
several blank lines and a signature space at the bottom. What are they actually asking the borrower to write?

Reply by BarbaraL_CA on 9/15/06 4:02pm
Msg #146401

You can not instruct them what to put in there - have them ask the loan officer.

FYI - Normally it's the reason for receiving funds (i.e. debt consolidation, home improvement, etc.)

Reply by sue_pa on 9/16/06 2:22am
Msg #146482

why would you call the LO for such a simple question? The borrowers know why they're getting the loan (today's borrowers were (2)convert adjustable to fixed rate, cash out to buy a RV and one where they paid off a tremendous amount of credit card debt- if they don't know their reason for the loan, perhaps their entire competency should be questioned.

Reply by Teresa/FL on 9/15/06 4:03pm
Msg #146402

They want a short statement giving the purpose or use of the cash out the borrower will be receiving.

Reply by Brenda/CA on 9/15/06 4:04pm
Msg #146404

The borrower's complete in their own words the purpose of taking cash out, and sign it.

Reply by Kirod9jx on 9/15/06 4:09pm
Msg #146407

I assumed that, just thought that was none of the lenders business.
Thanks for the response.

Reply by Gerry_VT on 9/15/06 7:27pm
Msg #146439

I know that around 30 years ago, mortgage lenders were required to make sure that the loan was for a suitable purpose. I don't know if that is ever a requirement anymore.

Reply by Joan Bergstrom on 9/15/06 10:50pm
Msg #146455

I did one a couple of days ago

It might have been Countrywide that has the borrower put an X next to a menu of reasons this loan is being refinanced.

Reply by Brenda/CA on 9/16/06 12:10pm
Msg #146526

Re: I did one a couple of days ago

Yes, that is Countrywide "Statement of Borrower Benefits".

Reply by ReneeK_MI on 9/18/06 4:38am
Msg #146669

Reason for loan isn't lender's business??

Of course it's their business. It's their MONEY, their risk, their liability. Cash-out loans carry a somewhat higher risk (hence a somewhat higher interest rate, if the cash is over 2k). The more equity the borrow has out of the home and in his hand (as cash), the greater the risk that he'll lose the incentive to stay in the home, instead of taking the money and running.

There is a place on page 1 of every 1003 that states the reason for the loan. When it's a cash-out - sometimes a Letter of Explanation (LOX) is requested in addition to whatever is stated on the 1003. Sometimes, it's done prior to close - sometimes, at close. What the lender does NOT want to see provided as the reason for cash-out:

"To help us move out of the country"
"To use as a down-payment for a [house, boat, car]" (because that means an addt'l monthly payment, which might over-extend the borrower on his debt-to-income ratio)
"So I can quit my job and start a new business."
"Our loan officer said it was a good idea, just for the heck of it." (Lender's do not want to do loans that are providing no benefit to a borrower - that would put it in the Predatory Lending Practices category).

Reply by BrendaTx on 9/18/06 5:30am
Msg #146670

Re: Reason for loan - Good explanation, Renee! n/m