Question & Answer

Question: We are modifying a loan to remove the balloon payment and amortize the principal. We are making this change at the request of the customer and we also have determined that the change is to the customer's benefit. Because we are modifying the existing loan and not replacing it with a new note, I understand that we do not have to give the customer a HUD-1 or Truth in Lending disclosures. My question is, how do we tell the customer about the terms of the loan and the fee we are charging to make the modification?

Answer: You are correct that the modification does not trigger new disclosures under either Truth in Lending or RESPA. You are always free to provide new disclosures if that is what you want to do. Otherwise, you would communicate terms to the customer the old fashioned way. Usually you would put the terms in writing to confirm the changes with the customer. This would be basically the same technique you would use in communicating a business loan approval. In other words, the format is yours to choose, but it is a good idea to be clear and to give the customer complete information.

Copyright © 2001 Compliance Action. Originally appeared in Compliance Action, Vol. 6, No. 4, 4/01