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Author
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Topic: Truth in Lending
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nga
Member Posts: 51
Registered: May 2001
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posted 10-15-2001 07:51 PM
  
I am confused about exactly what constitutes a refinancing. I know if you add new money to a note, that is considered refinancing and triggers new disclosures. I told one lender if he modifies a note by lowering the interest rate, (not swithching from fixed to variable rate) that is not a refinance. He wants to know if he can charge a modification fee and finance the fee. If he does this, is it considered new money and therefore a refinancing needing new disclosures?IP: Logged |
Eric
Member Posts: 27
Registered: Mar 2001
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posted 10-16-2001 08:57 AM
Look at 226.20 and the commentary to that section. Basically, if the orignial obligation is satisfied and replaced by a new obligation in accordance with "the parties contract and applicable law", it is a refinancing and disclosure is required. So, you really need to know if under your state law if the way the refinanced loan is documented causes the original obligation to be "satisfied and replaced". In many states, if the original note is left in place and the parties enter into agreement modifying the original note, the original obligation is not "satisfied" and it would not be considered a refinancing. Keep in mind that 226.20(a) lists types of transcations exempt from new disclosure even if the transaction is a refinancing. IP: Logged |
bwest
Member Posts: 268
Registered: Jun 2001
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posted 10-16-2001 09:51 AM
I agree with Eric. This is something I have had a difficult time understanding and I think he explained it very well. Certain fees may be charged without making it a "refinance". IP: Logged |
Richard Insley
Member Posts: 233
Registered: Oct 2000
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posted 10-16-2001 05:13 PM
Hard to believe, but this standard is MUCH BETTER than the one it replaced when Reg Z was "simplified" 20 years ago.
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Lucy Griffin
Moderator Posts: 556
Registered: Nov 2000
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posted 10-18-2001 05:55 PM
All roads lead back to 226.17(c) -- my favorite part of Reg Z. 226.20 uses the legal obligation standard. Then it offers several examples of what is not a refinancing. These examples are not exclusive. The most critical test is whether you have extinguished and replaced the underlying note or simply modified the existing note. Yes, you can charge a fee for doing this and the fee does not affect the nature of the transaction.IP: Logged |
Mary Beth Guard
Moderator Posts: 259
Registered: Oct 2000
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posted 10-18-2001 05:57 PM
Lucy, it's truly scary that you have "favorite" parts of Regulation Z.  IP: Logged |
Lucy Griffin
Moderator Posts: 556
Registered: Nov 2000
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posted 10-18-2001 06:10 PM
Actually, I'm trying to figure out a Halloween costume for 226.17(c)! Not that anyone on the trick-or-treat circuit would get it...IP: Logged |
