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#124032 - 10/21/03 06:48 PM HMDA Technicality
swiggles Offline
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Here's a scenario for my question:

Five years ago, borrower took out a loan to purchase rental property. He submitted an application complete with government monitoring information. The loan was set up on a 15-year amo with a 5-year balloon. After 5 years, the borrower renewed the loan, but the officer did not require a new application and thus did not have the borrower answer gov monitoring questions.

In your opinion, would we get slapped with a violation for relying on the monitoring information on the original application for reporting purposes for the renewal?

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#124033 - 10/21/03 08:26 PM Re: HMDA Technicality
hmdagal Offline
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We do not report renewals of balloon notes.

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#124034 - 10/21/03 09:18 PM Re: HMDA Technicality
swiggles Offline
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Quote:

We do not report renewals of balloon notes.



Why not?
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#124035 - 10/21/03 09:24 PM Re: HMDA Technicality
Dan Persfull Offline
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Bloomington, IN
Renewals,extensions and modifications are not reportable.

I also think you would be ok to use the GMI in file.
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#124036 - 10/21/03 09:30 PM Re: HMDA Technicality
Anonymous
Unregistered

What if a new note was signed?

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#124037 - 10/21/03 09:50 PM Re: HMDA Technicality
Dan Persfull Offline
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Bloomington, IN
A new note replacing an existing note would be a refinance.
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#124038 - 10/21/03 09:50 PM Re: HMDA Technicality
jnelson Offline
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WI
Our bank is struggling with this very scenario. In a previous thread “Re: HMDA – refinance vs. renewal” a refinance would include all real estate balloon loan renewals whether or not new money was advanced. In our shop, when the balloon loan matures new loan documents are drafted, signed by the customer and the previous loan documents are kept in the file stamped “renewed.” In my opinion this transaction should be included on our LAR, the majority vote at the bank is that this is not a reportable transaction.

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#124039 - 10/21/03 09:55 PM Re: HMDA Technicality
swiggles Offline
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Quote:

Our bank is struggling with this very scenario. In a previous thread “Re: HMDA – refinance vs. renewal” a refinance would include all real estate balloon loan renewals whether or not new money was advanced. In our shop, when the balloon loan matures new loan documents are drafted, signed by the customer and the previous loan documents are kept in the file stamped “renewed.” In my opinion this transaction should be included on our LAR, the majority vote at the bank is that this is not a reportable transaction.




.....my thoughts as well......new note, new obligation, reportable..............no new note, no new obligation, not reportable.
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#124040 - 10/21/03 10:39 PM Re: HMDA Technicality
hmdagal Offline
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This question came up at the FRB seminar in Chicago. The answer was that a new note is not necessarily the determining factor in the refi vs. a renewal decision. If the original mortgage is not released and is referred to in the new note, it would not be a new transaction and would not be reportable.

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#124041 - 10/21/03 11:24 PM Re: HMDA Technicality
Andy_Z Offline
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That sounds more like a modification.
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#124042 - 10/22/03 01:41 AM Re: HMDA Technicality
David Dickinson Offline
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Central City, NE
Let me go back to the original question: Do you need to get new GMI everytime? No (it shouldn't change ). See the Commentary to 202.13(a) #6.
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#124043 - 10/22/03 12:27 PM Re: HMDA Technicality
opie Offline
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Bloomington, IL
I would be apt to consider this a refinance if you did get a new application, reviewed all the underwriting criteria and then signed a new note. Without getting a new application it almost sounds as if it was automatically renewed at the end of 5 years and that to me would not be reportable.

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#124044 - 10/22/03 01:34 PM Re: HMDA Technicality
Lestie G Offline

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Quote:

This question came up at the FRB seminar in Chicago. The answer was that a new note is not necessarily the determining factor in the refi vs. a renewal decision. If the original mortgage is not released and is referred to in the new note, it would not be a new transaction and would not be reportable.




The FRB seminar I attended in Dallas addressed this as well. But with the opposite result. The speaker said, in a nutshell, new note - report. No new note, don't report.
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#124045 - 10/22/03 01:46 PM Re: HMDA Technicality
swiggles Offline
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Good Morning!

This is why I try to base decisions strictly on HMDA Getting it Right.....though seminar material is also important...otherwise, why attend them?

In my situation, we are not in any way obligated to renew the transaction. Unless it's to purchase a homestead, I don't even think an application or absence thereof is a factor. If we look at the loan again (performance/credit history, etc) and choose to renew it, and have a new promissory note signed, I believe it is a refinance and reportable. The fact that the new note refers to the old note and the lien instrument is extended rather than released is simply a way to hold lien position (at least in Texas it is).

Additionally, we download our loan data directly into HMDA software. It would be extremely difficult, if not impossible to separate these types of notes from reportable loans for the download.

Historically, we have always used this method and, knock on wood, have never been criticized.
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#124046 - 10/22/03 01:50 PM Re: HMDA Technicality
swiggles Offline
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Oh, and David.....thanx for the link. I can't believe I've never noticed or read that passage. But, at least my question served to open some good discussion.
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#124047 - 10/22/03 03:18 PM Re: HMDA Technicality
swiggles Offline
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One more thought on the issue......well, this actually more of a monkey wrench than a thought.

For loans reported in 2004, I would logically deduct that we SHOULD obtain new monitoring information for existing indebtedness that is refinanced. At that time, the borrower will have the opportunity to select ethnicity and up to 5 racial categories. I would imagine that the regulators would want the borrower to have that opportunity.
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#124048 - 11/13/03 05:04 PM Re: HMDA Technicality
Anonymous
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HMDA material I've read indicates ... if the existing obligation is not satified and replaced... but is only renewed, modified, extended or consolidated, the transaction is not a refinancing for HMDA purposes.

Where can I get a specific definition for renewal, modification, extentions, and consolidation to make sure loan officer understand? Our commercial loan area especially seems to get creative..
Thanks!

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#124049 - 11/13/03 05:28 PM Re: HMDA Technicality
swiggles Offline
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Quote:

Where can I get a specific definition for renewal, modification, extentions, and consolidation to make sure loan officer understand? Our commercial loan area especially seems to get creative..
Thanks!




The best definition I know of from the Staff Commentary to Regulation C, which is:

2. Meaning of refinancing. A refinancing of a loan is the satisfaction and replacement of an existing obligation by a new obligation by the same borrower. The term `refinancing' refers to the new obligation. If the existing obligation is not satisfied and replaced, but is only renewed, modified, extended, or consolidated (as in certain modification, extension, and consolidation agreements), the transaction is not a refinancing for purposes of HMDA. (Appendix A of this part, Paragraph V.A.5. Code 3.)

Here's Appendix A V.A.5.Code 3........

V. Instructions for Completion of Loan/Application Register
A. Application or Loan Information
5. Explanation of Purpose Codes
Code 3: Refinancings.
a. Use this code for refinancings (and applications for refinancings) of loans secured by one- to four-family residential dwellings. A refinancing involves the satisfaction of an existing obligation that is replaced by a new obligation undertaken by the same borrower. But do not report a refinancing if, under the loan agreement, you are unconditionally obligated to refinance the obligation, or you are obligated to refinance the obligation subject to conditions within the borrower's control.
b. Use this code whether or not you were the original creditor on the loan being refinanced, and whether or not the refinancing involves an increase in the outstanding principal.
c. You may report all refinancings of loans secured by one- to four-family residential dwellings, regardless of the purpose of or amount outstanding on the original loan, and regardless of the amount of new money (if any) that is for home purchase or home improvement purposes.


Legally speaking, if your borrower signs a new promissory note (or a new "promise to pay"), your bank is now relying on the new note....not the old one. The old one has been replaced by a new obligation, making the transaction reportable under HMDA.
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#124050 - 11/13/03 07:11 PM Re: HMDA Technicality
RFitzpatrick Offline
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Quote:

Legally speaking, if your borrower signs a new promissory note (or a new "promise to pay"), your bank is now relying on the new note....not the old one. The old one has been replaced by a new obligation, making the transaction reportable under HMDA.




I'm still with HMDAgal on this one. We often use a new note for balloons, commercial loans, etc. to renew a loan at current terms. The underlying obligation (deed, mortgage) has not been satisfied and replaced. Even though there is is a new note it simply renews, extends, and/or modifies the existing obligation. If we advance additional funds or change terms so that a new deed needs to be filed, then we consider that a refinance and reportable.
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#124051 - 11/14/03 04:00 PM Re: HMDA Technicality
CSpellman Offline
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The "obligation" is the note (legal obligation to repay); the mortgage is a security instrument. A new note replaces the old new so you have a new obligation. Someone once explained it to me that the note (promise to pay) is an obligation but the mortgae doesn't oblige them to DO anything--it justs secures the obliation.
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#124052 - 11/14/03 04:42 PM Re: HMDA Technicality
swiggles Offline
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Quote:

The "obligation" is the note (legal obligation to repay); the mortgage is a security instrument. A new note replaces the old new so you have a new obligation. Someone once explained it to me that the note (promise to pay) is an obligation but the mortgae doesn't oblige them to DO anything--it justs secures the obliation.




As a final note.....though I have an aversion to using the old cliche, "that's the way we've always done it".....

I'll change it to "that's always been our interpretation and that's how we've been reporting those loans for the 25 years I've been at this bank." We've never been criticized for the practice......which is not say we never will!!
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#124053 - 11/14/03 05:23 PM Re: HMDA Technicality
hmdagal Offline
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Virtually all of our portfolio loans are balloon notes, so we process many renewals. Perhaps the key is that all of the new notes state that they renew, but do not satisfy, the existing obligation dated __________.

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#124054 - 11/14/03 07:00 PM Re: HMDA Technicality
swiggles Offline
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I see your point. My bank, on the other hand, has very few of these. We sell most of our mortgage loans on the secondary market. Home improvement loans are almost always under 10 years and set to amortize out. I would venture to say that any balloon loans are probably for rental properties.
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#124055 - 11/14/03 11:02 PM Re: HMDA Technicality
Anonymous
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This is truly a technicality since we'll all have new forms to use next year, but do note that David's reference above is from Reg B, not Reg C. We try to get the commercial lenders to use an addendum form each time HMDA applies. It's a challenge.

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#124056 - 01/08/04 09:34 PM Re: HMDA Technicality
BWG Offline
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The HMDA Commentary attempts to make the splits in the refinancing hair obvious, but it is still confusing. When this definition was hammered out several years ago the spirit was to not require institutions to collect and report GMI when adhoc/periodic/routine/scheduled modifications of a permanent financing plan was an issue. If the loan was scheduled to balloon every three years simply as a mechanism to adjust the rate/terms then HMDA reporting was not required or even desired. You would in effect be reporting re-fi activity on a loan you were adjusting as standard for that product offering.
But if each three years the note balloons, the customer completes a new application, GMI is collected - all because a credit decision is rendered (i.e. the customer could be declined)and/or new money could be a consideration - then this would be considered a refinancing for HMDA purposes.
That definition has passed muster through several close ordered internal audits and supervisory exams at my institution. But of course, our underwriting schema and product designs are complimentary to the approach. Each instituion needs to exam their own internal workings to see which refi methodology would work best for them.
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