We have a HELOC for which the borrower is having trouble paying, and we are looking to work it out.

Here is our proposal:

Change the HELOC to a 3 year Term Loan with a 15 year amortization, but a balloon at the end of 3 years.

Change it from a variable rate to a fixed rate

Do we need to pay off current loan, create a new term loan and do all new disclosures, or is a loan modification possible?

The only potential negative to the borrower in this deal is the 3 year balloon vs. the 15 year payoff.

Thoughts?

http://www.bankersonline.com/lending/guru2008/gurus_ldng091508c.html

Looks like a modification would be ok.

Thanks Ray.

The concern, though, is that this is almost an entirely new loan product (LOC to term loan and shorter term), so I am wondering if these changes are enough to warrant a new loan or if it would be acceptable to just modify it.

The example you provided is more or less just a renewal.

It seems to be acceptable either way. If you feel more comfortable providing the disclosures as a new loan you could.

It doesn't matter how much (or little) you're changing. As long as you don't replace Loan A with Loan B, but rather modify it (legally), no new disclosures are triggered under RESPA, TIL and it's not a HMDA reportable loan.

Refer to §226.20(a)

We have a very similar situation. In our case, we are going to modify the existing mortgage (to extend the maturity date) and the update the account number (system won't allow changing from a HELOC product type to a HELOAN - it makes you create a new account number). There's no new money. We are also doing this to eliminate having to pay doc stamps and intangible taxes again.



I assumed that the new loan would be HMDA reportable and we went ahead and did new disclosures.

Using my scenario....would you consider what we are doing a modification or are we replacing loan A with loan B because it has a new account number?

You mention the mortgage but not what you did with the loan. The account number is of no consideration. That's an internal recordkeeping system. Did you satisfy, replace and extinguish the loan with a new loan or did you modify the existing loan and not replace/satisfy/extinguish the old loan?

New loan = new disclosures. Modify old loan = no new disclosures.

If the HELOC is being modified by an agreement between the parties from open-end credit to a closed-end credit then closed-end credit disclosures must be given.

From the OSC to 226.5b(5)

• If the consumer and creditor enter into an agreement during the draw period to repay all or part of the principal balance and the amount of available credit will not be replenished as the principal balance is repaid, the creditor must give closed-end credit disclosures pursuant to subpart C for that new agreement. In such cases, subpart B, including the substantive rules, does not apply to the closed-end credit transaction, although it will continue to apply to any remaining open-end credit available under the plan.

Dan, you rock, thanks.

The HELOC has matured, so this is what we were planning to do....a new HELOAN/Closed end note, disclosures on the new closed-end loan, and we were going to report it under HMDA, And...we were going to do a mortgage modification on the HELOC mortgage that matured and extend the maturity date to match the maturity date on the new HELOAN (we were trying to avoid paying doc stamps and intangible taxes all over again).

Dan and David....based on your comments, it seems to me that the best thing for us to do is just close the HELOC, satisfy the mortgage, do a new loan, disclose on the new loan, and report the new loan for HMDA (as a refinance)....and pay doc stamps and intangible taxes again (maybe more expensive, but it's cleaner this way).

Am I on the right track?

You're right on.

Dan: Thanks for pointing the Commentary out. Love BOL - I still learn something new everyday.

I agree with David MH that you are on the right track.

I'm not familiar with FL law or how the "taxes" work. Would it be possible for you to modify the mortgage and just do a new note tied to the mortgage, thereby avoiding the taxes, or are they tied to the "loan"?

For HMDA the obligation must be satisfied and replaced to meet the definition of a refinancing. Your note is the obligation, not the mortgage, therefore the mortgage does not have to be satisfied. See http://www.ffiec.gov/hmda/faqreg.htm#relien


You are welcome David. I too learn something new just about every day.

Got it.....Thanks so much!

Yes, thanks, you guys are great.

Dan...in the FL Statutes, it appears to say that a loan is exempt from tax only when the "renewal note only extends or continues the identical contractual obligations of the original promissory note." (See full text below.) We understood this to mean that since obviously a HELOC and HELOAN aren't identical in any sense, that would mean taxes must be paid on the new loan.

....................
2008 Florida Statutes
Title XIV – Taxation and Finance
Chapter 201 – Excise Tax on Documents

201.09 Renewal of existing promissory notes and mortgages; exemption.--

(1) When any promissory note is given in renewal of any existing promissory note, which renewal note only extends or continues the identical contractual obligations of the original promissory note and evidences part or all of the original indebtedness evidenced thereby, not including any accumulated interest thereon and without enlargement in any way of the original contract and obligation, such renewal note shall not be subject to taxation under this chapter if such renewal note has attached to it the original promissory note with the proper notation thereon as required by s. 201.133.
....................

So, we're just going to satisfy our HELOC mortgage, do a whole new HELOAN (disclose, report to HMDA, waive rescission) and call it a day.

From reading that cite it appears the taxes are tied to the note (obligation) and any new note would require the taxes.