We are a small community bank. We make the 10 to 15 year am loans with 3 year balloons, we do not sell our loans. Our loans are fixed rate loans. Will we be in the category of the HPML? If so can you tell me if the apor has been established yet and where to find the guidelines?

Thanks for your help.

It will depend on the APR for the loan and lien position. The current APOR is 5.02% for a 3yr term fixed rate loan. You can reach the APOR table here:

http://www.ffiec.gov/ratespread/newcalc.aspx

Can we still make loans like this- 10 to 15 year am with 3 year balloon?

Ok, thanks for the information on the table.

There is no prohibition against making 3 year balloon loans, unless they qualify as a HOEPA loan. However, if the loan qualifies as an HPML, you are going to have to comply with all the new Regulation Z requirements.

Randy,

I agree, there is no prohibition against making a 3 year balloon loan, but what impact would the loss of the "Presumption of Compliance" have on a bank that makes these types of loans?

Ok, so do we need to stop doing 3 year balloon and do some other type of loans. Example 10 or 15 year loans with no balloon. We trying to understand all of this, but need a little guidance.

Thanks for all of your help.

I'm not Randy and he may have more information but here's some possibilities:

1. The loss of the "presumption of compliance" will affect your compliance rating.

2. If the loan goes bad within the 3 year period and you did not document the borrower's ability to repay the balloon payment when it came due they can raise a defense that you knowingly made them a loan that they could not afford to repay.

3. In relation to # 2 and dependent on the courts, you could have to forgive the loan and refund all interest and other charges paid in association with the loan.

Is there a problem with making 10 to 15year loans? Our customer will pay out the loans in this term.

Example: Customer comes in tomorrow completes application to purchase home. We tell them the rate and terms (10 Years) is this fine or will there be some sort of violation here. Like I said we always do our loan fo 10 or 15 years.

Thanks for all of your help and guidance.

There is no prohibition from making a dwelling secured loan with a 10 or 15 year term. Many FIs offer 10, 15, 20 and 30 year mortgages.

However the documentation of the ability to repay applies to all loans, regardless of their term, that fall in the HPML category.

I have a question on 3 year balloon notes that were aleady on the books prior to 10/1/09. When they renew, will they then fall under the new rules? In listening to an ICBA sudio conference, this question was asked. Someone else stated that they were told if the loan was renewed prior to the maturity date, then it would not fall under the new rules. Can you shed any light on this or what is your opinion on existing balloon loans, under 7 years, that will be coming up for renewal after October 1st.

Thank you for the help.........

If you don't refinance the loan (replace with a new loan), it is not subject to the HPML requirements. However, some examiners may see this as circumvention.

If you renew/modify the terms before the maturity date they would not be subject to redisclosure, as long as there is not a new obligation (note) that replaces the existing obligation (note).

You can't renew or modify matured terms. You would be replacing them with new ones which would be a refinancing. Refinancings are subject to the new rules.

I was concerned that was what it would look like, that we were trying to get around the HPML requirements.

Thank you for your opinion and quick response. Looks like I will be giving a call to our examiners.

If we modify terms prior to maturity to extend the maturity and change from a fixed to a variable rate, what disclosures would we have to give the customer? Would that be treated as a refinance or a modification?

If you change from fixed to variable rate, you must provide new disclosures and treat as a refinancing. It is not a modification.

Adding a variable rate feature not previously disclosed constitutes a refinancing requiring all new disclosures. See the Commentary to 226.20(a)(3).

Regarding modifications ... guess I missed this one!

We currently modify from ARM to ARM, meaning we should send new ARM program and CHARM book again. Do I understand correctly that we should also prepare a new TIL?

Also, if this modification is considered a "refinancing" under Reg Z, do we also have to follow the delayed fee-collection requirement until the disclosures are deemend received?

Thanks for your help!

We also currently modify from ARM to ARM, by cutting the customers monthly payment in half for a 12 month period and then reverting back to the original terms afterwards. However, this causes the customer to have no principal reductions for about 2 to 3 years after reverting back to the original terms. I am concerned that we may be doing something wrong here. What are your thoughts?

It would depend what you are modifying. If you add a variable rate feature that was not previously disclosed then you have a refinancing subject to all new disclosures and the new requirements.

Basically if you add or change any feature that would constitute a new ARM plan would be a refinancing and require all new disclosures.

Some examples.

Modifying a 3 year ARM to a 5 Year ARM would be a refinancing.

Modifying the floor rate would be a refinancing.

Modifying the margin would not be.

Dan,

When you say "would not be subject to redisclosure" above, would this only be for the ETIL and Final TIL disclosures or would this also mean that a GFE would also not be required. Not trying to be argumentative, just trying to make sure what is NOT required when a true and correct note modification is done.

Dan, I follow you now. I will go back to the regulation and review that section about changing a "feature" of the existing ARM program to ascertain if we have a refinancing. Thanks for setting me on the right path.

A true modification, where a new obligation (note) is not taking place of the existing obligation, does not require any new disclosures unless there is an addition of a variable rate feature.

Dan,

Could you please point me to the area in RESPA that would address not having to provide a GFE, in this instance?

Thanks, Dan! We are doing your example #1. So we must do a new TIL along with the program disclosure and the CHARM booklet.

But in addition to that, we charge a modification fee. Can we collect that fee upfront when the borrower requests the modification? Or must we wait until the disclosures are received (under the MDIA rules)?

I am also curious about Clint's RESPA question.
Thanks!

Clint - A modification does not meet the definition of making a federally related mortgage loan or the refinancing of one.

Elliemae - Since this constitutes a refinancing and requires all new disclosures you would have to follow the current (new) timing rules IMO.