Are modifications of small business loans CRA reportable?

Did you have a new note signed that satisfied and replaced the existing obligation?

No new note will be signed. These are basically extensions. Sounds like a renewal to me and those should be reported on CRA. Correct?

Per the CRA FAQ - do not confuse HMDA rules with CRA rules:

§ll.42(a)–5: Should institutions
collect and report data about small
business and small farm loans that are
refinanced or renewed?
A5. An institution should collect
information about small business and
small farm loans that it refinances or
renews as loan originations. (A
refinancing generally occurs when the
existing loan obligation or note is
satisfied and a new note is written,
while a renewal refers to an extension
of the term of a loan. However, for
purposes of small business and small
farm CRA data collection and reporting,
it is not necessary to distinguish
between the two.) When reporting small
business and small farm data, however,
an institution may only report one
origination (including a renewal or
refinancing treated as an origination)
per loan per year, unless an increase in
the loan amount is granted. However, a
demand loan that is merely reviewed
annually is not reported as a renewal
because the term of the loan has not
been extended.

MS Kaybee,

I don't think I'm confusing HMDA with CRA, but please confirm. A modification is not HMDA reportable. A renewal or refinance is CRA reportable. A modification is a renewal for CRA purposes.

Thanks for your help.

Yes, that is correct. Modifications are not HMDA reportable. CRA treats modifications that are renewals differently than HMDA. The rules are different for CRA than HMDA. So - for CRA a modification that just changes terms and conditions is not reportable. If a loan is "renewed" via a modification it can be CRA reportable. CRA does not require a "refinance".

Additionally, a residential mortgage modification that is not HMDA reportable can be included for a CRA exam as a CRA Type 9. This is especially important in parts of the country (New York for one) where modifications are used extensively because of taxes.

When you say "....for CRA a modification that just changes terms and conditions is not reportable", what does that mean? If I have a CRA loan that is modified to extend the maturity date and change the rate, would that be considered a renewal?

On another CRA subject.....We are an OTS regulated institution. A small business loan is defined as a loan with an original amount of $1 million or less and was reported on the TFR as either loans secured by nonfarm or nonresidential real estate, or commercial and industrial loans.

Are business purpose loans with a loan amount of $1 million or less, secured by residential real estate or vacant land CRA reportable?

Thanks for all your help. We are a denovo institution, and I want to be sure I get this right to start with.

If you have a CRA loan and the rate is being changed, then the loan would not be reportable, however if the term is being extended, then it would be reportable as a renewal.

For CRA purposes, loans secured with residential real estate (or land) are not reportable, unless taken as abundance of caution.

So just to verify..

I have a loan, originally a RLOC, proceeds were used for improvements on an investment property, real estate secured (2-flat). At maturity, the loan was, per the write-up renewed and modified, the outstanding balance was termed-out with repayment consisting of P & I, due monthly. A new note will be signed.

Since we are not truely satisfying and replacing the previous note, given the dialouge above, it would lead me to believe this loan would fall into the CRA type 3 category, since this is a renewal with a change in terms and repayment structure... The LO is claiming HMDA refi.

Any thoughts?

..and no the loan would not qualify for CDL credit (just anticipating a reply)

Thanks in advance

You have a new note secured by residential real estate, replacing a previous note that was to same borrower secured by residential real estate. The only questionable aspect is that apparently the original line is remaining available for future borrowing, but the original borrowings have been satisfied and replaced. If you sued you would need the new note to go to court.

I would treat as a HMDA refinance.

I see what you're saying Kaybee. The new note is only terming out the outstanding balance. On the disbursement side the new note is not replacing any debt. The new note will not have language referncing a payoff of loan xxx.

Just found out from Loan Ops there is new language in the commercial loan renewal docs: "This Note restates and replaces a Promissory Note in the original principal amount of $__________, dated _____________ executed by Borrower in favor of Lender (the "Prior Note") and is not a repayment or novation of the Prior Note."

I don't understand the point of the note language. How can you replace the prior note and not repay the prior note.

The funds from the term loan did replace the outstandings on the line - the only debt on a line - so it did replace debt, moving it from a line to a term loan. You can't payoff the unfunded portion - there is no debt, just a potential liability if drawn.

Any future borrowings on the line, if it was left in place, will be new money unrelated to the prior debt that was termed out.

If you do or do not report, just be consistent on other similar loans.