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#124032 - 10/21/03 06:48 PM
HMDA Technicality
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Power Poster
Joined: Aug 2001
Posts: 7,351
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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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#124035 - 10/21/03 09:24 PM
Re: HMDA Technicality
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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Renewals,extensions and modifications are not reportable.
I also think you would be ok to use the GMI in file.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#124036 - 10/21/03 09:30 PM
Re: HMDA Technicality
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Anonymous
Unregistered
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What if a new note was signed?
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#124037 - 10/21/03 09:50 PM
Re: HMDA Technicality
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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A new note replacing an existing note would be a refinance.
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#124041 - 10/21/03 11:24 PM
Re: HMDA Technicality
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On the Net
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That sounds more like a modification.
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#124045 - 10/22/03 01:46 PM
Re: HMDA Technicality
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Power Poster
Joined: Aug 2001
Posts: 7,351
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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
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Power Poster
Joined: Aug 2001
Posts: 7,351
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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
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Power Poster
Joined: Aug 2001
Posts: 7,351
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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
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Anonymous
Unregistered
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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
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Power Poster
Joined: Aug 2001
Posts: 7,351
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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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#124051 - 11/14/03 04:00 PM
Re: HMDA Technicality
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100 Club
Joined: Nov 2000
Posts: 176
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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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#124054 - 11/14/03 07:00 PM
Re: HMDA Technicality
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Power Poster
Joined: Aug 2001
Posts: 7,351
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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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The more you sweat in training, the less you bleed in battle.......
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#124055 - 11/14/03 11:02 PM
Re: HMDA Technicality
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Anonymous
Unregistered
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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
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New Poster
Joined: Nov 2002
Posts: 12
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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. ______________________________ --- If it is simple, it doesn't involve the government.
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