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#1279543 - 11/03/09 08:07 PM Renewals and disclosure timing
QueenBB Offline
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TX
We have several RE loans (30 yr AM, balloon in 3 yrs) that are ballooning. We are considering "renewing" them with a 30 year AM, 3/1 ARM. We are NOT satisfying and replacing the original note, so it is not a refinance. Correct? I understand that new disclosures are required because of the addition of the variable rate. My question concerns the timing of the disclosures. No application is required. How do we handle timing of TILs?

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#1279583 - 11/03/09 08:25 PM Re: Renewals and disclosure timing QueenBB
RR Joker Offline
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The Swamp
I would say that would be a refinance...aren't your notes totally different? At any rate, you are subject to disclosure, so you are subject to timing rules based on when you start the process with your customer.

Personally, I'd get a new application, per Reg B..I truly do believe you have a refinance.

(I think this is why we don't do "renewals");)
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#1279708 - 11/03/09 09:12 PM Re: Renewals and disclosure timing RR Joker
QueenBB Offline
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TX
We will actually "renew" the loan for the remaining 27 years. The only part of the note that would be different is the section on Terms of Payment and the interest rate (which will be lowered). That change would be made in the Modification Agreement (or whatever it is called). Is this really a refinance? Requiring us to pay off the old loan and start over? I just need some help here.

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#1280088 - 11/04/09 02:12 PM Re: Renewals and disclosure timing QueenBB
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Quote:
We are considering "renewing" them with a 30 year AM, 3/1 ARM.


You are adding a variable rate feature that was not previously disclosed therefore you have a refinancing whether you satisfy and replace the existing obligation or not. Review the Commentary to 226.20. All new disclosures and their timing requirements will apply.
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#1280096 - 11/04/09 02:15 PM Re: Renewals and disclosure timing Dan Persfull
RR Joker Offline
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RR Joker
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The Swamp
Thanks for clarifying that Dan...I did in my mind (going to a VR feature) but it never made it to print! wink
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#1280173 - 11/04/09 03:07 PM Re: Renewals and disclosure timing RR Joker
QueenBB Offline
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Posts: 190
TX
Thanks for your help.....I think. crazy Now, I'm getting gray hair over this issue. So....if we "did something" to the loan such as fixed rate for 8 years, then balloon, there would be no disclosures? Would this be called a renewal? I've read and read the regs, but the definitions are giving me grief.

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#1280453 - 11/04/09 05:12 PM Re: Renewals and disclosure timing QueenBB
Dan Persfull Offline
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Bloomington, IN
Read the Commentary to 226.17 and 226.19(b) carefully. If you are obligated to renew the balloon loan or the borrower has the right to renew the balloon if they meet certain conditions under their control you still have a variable rate loan if the rate can increase at the time of renewal.
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#1281010 - 11/04/09 09:34 PM Re: Renewals and disclosure timing Dan Persfull
drewella Offline
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Along the same lines, I have an additional question about maturing loans that are being renewed. The lenders have a habit of renewing loans that have matured well past the maturity date and then want to backdate the note. Since we now have to provide disclosures within 3 days of application I would say that the lender can't really back date the transaction. Is this correct?

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#1281391 - 11/05/09 02:51 PM Re: Renewals and disclosure timing Dan Persfull
Janet Munns Offline
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Janet Munns
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Florida
What if you are modifying the terms of a 3/1 ARM to a 7/1 ARM. All other terms remain the same. Would new disclosures be required?
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#1281402 - 11/05/09 02:57 PM Re: Renewals and disclosure timing Janet Munns
David Dickinson Offline
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Central City, NE
No. Not if it's truly a modification and not a refinancing.
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#1281433 - 11/05/09 03:15 PM Re: Renewals and disclosure timing David Dickinson
Janet Munns Offline
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Janet Munns
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Florida
I do believe that it is a modification. We are changing the adjustable rate term from 3 to 7 only. The initial rate remains the same, no new money, no fees.
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#1281505 - 11/05/09 04:04 PM Re: Renewals and disclosure timing David Dickinson
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Quote:
What if you are modifying the terms of a 3/1 ARM to a 7/1 ARM.


Generally I would agree with David's comment, but in this case you are modifying an ARM from the rate adjusting in the first 3 years to adjusting in the first 7 years. IMO this would be "adding" an adjustable rate feature not previously disclosed. Your previous variable rate feature disclosed had the first rate change in 3 years, not 7 years, so the 7 year rate adjustment feature was not previously disclosed, ie. the worse case scenario was disclosed based on the first rate change in 3 years, not 7 years and also in the section on when your rate may change.

IMO you have a refinancing under 226.20 that requires all new disclosures.
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#1281565 - 11/05/09 04:40 PM Re: Renewals and disclosure timing Dan Persfull
QueenBB Offline
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Posts: 190
TX
What a mess! So, if we take the 30 year AM/3 year maturing balloon fixed rate loan and change it to remaining 27 year/8 year balloon fixed rate loan......where do we stand on disclosures? Because the 3 to 8 year balloon was not disclosed, is it considered a refinance - which ultimately means "start over"? Needless to say, my bank has an issue here, and they don't like "my" answers.

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#1281589 - 11/05/09 04:54 PM Re: Renewals and disclosure timing QueenBB
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Modifying a balloon loan into another balloon loan would not necessarily be a refinancing. If under the legal contract the bank is unconditionally required to refinance the balloon when it comes due or must do so if the borrower meets conditions under their control and the bank can increase the rate at the time the balloon is renewed then you have a variable rate loan requiring new disclosures. If the bank is not contractually obligated to renew the balloon payment then there is no variable rate feature and you can modify the the loan without new disclosures.

We haven't done balloons in over 6 years but when we did we made sure we used the rider that was in all CAPS and bold type at the top of the note that stated the bank had no legal obligation to renew the balloon payment when it came due.
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#1281918 - 11/05/09 07:51 PM Re: Renewals and disclosure timing Dan Persfull
QueenBB Offline
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Joined: Jan 2006
Posts: 190
TX
So does the 7 year balloon issue still hold for the modification? Could we modify the 30 year AM fixed rate loan with the 3 year balloon for the remaining 27 years with another fixed rate loan with a 3 or 5 year balloon? Yes, our notes state clearly that we are NOT obligated to renew. Unfortunately, these are "Neighbor" loans which we were encouraged to make for CRA purposes because they are for lower income individuals that really don't qualify for a whole lot.

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#1281927 - 11/05/09 08:00 PM Re: Renewals and disclosure timing QueenBB
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
If you are referring to the ability to repay using the highest scheduled payment in the first 7 years under HPML then no that would not come into play if you modify the loan because no redisclosure is required.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1295309 - 11/30/09 02:47 PM Re: Renewals and disclosure timing Dan Persfull
1995Banker Offline
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Posts: 241
I was searching for refinances vs. renewals this morning and came across this post. I have a question that I really need to get some clarification on.

What if we take a renewal and "refinance" with all "new" disclosures and when the loan system assignes it a "new" loan number, we over-ride and change back to the "old" loan number. It appears on paper that it's a refinance, but on our sustem, the new history takes up where the old history leaves off. In my opion, that does not fit the definition of "satisfying an existing loan w/a new loan".

Please offer opinions...thanks!
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#1295312 - 11/30/09 02:52 PM Re: Renewals and disclosure timing 1995Banker
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
How you process it internally is not a factor in the definition of a refinancing.

If the new obligation (note) satisfies and replaces the existing obligation (note) then it's a refinancing.
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