We currently have the following loan on our LAR, and I think it should be removed, BUT to be sure - I wanted to get additional opinions on the matter (i/o/w - I am in HMDA [censored] and seeking moral support)...

Original loan was a HELOC that had matured, the borrower had been delinquent and ended up on our watch list. Though we do have an application form specifically for the purpose of requesting a modification, the lender provided the borrower with our typicaly Home Equity app.

The borrower submitted an app on 6/27/10 for a 12 mo renewal of their HELOC. It was an incomplete app. On 7/23/10, the borrower submitted their financials to complete the application. The bank approved it as a HELOC on 8/11/10.

On 8/25/10, the borrower then asked for additional money to pay their past due property taxes. Feeling generous, we approved their request, but counter-offered with a HELOAN.

The lender wrote a memo to the file detailing the above and added that this was a modification to help the borrower with their financial situation. It was approved and closed as a 12 month HELOAN at 4% int only. We modified the existing mortgage in place and executed a new note.

Reportable as a refinance?
Or
Not reportable, since it was a modification?

Though it would seem clear that this is a modification, the borrower did not necessarily indicate on any documents they submitted that they were asking for a modification. The application actually is marked for the purpose of "Other - renewal of existing HELOC."

It sounds like a refi to me. You satisfied and replaced the original obligation with the new note. For HMDA, it's immaterial that the mortgage was modified instead of re-done.

Converting a HELOC to a HE is a refinancing which requires all closed-end disclosures such as MDIA, ETIL, GFE, HPML, etc.

We have been reporting any of the HELOC's that we have converted into HELOAN's, BUT...again, since this appears to be a modification (at least according to the memo in the file from the lender), and modifications are not reportable - would we count this one?

On a related note, we had another loan on our LAR that was HELOC that we converted into a HELOAN, but the file contained a hardship letter from the borrower along with a modification request, etc. It was only because our system would not support modifying the existing terms and keep it as a HELOC that we ended up re-writing a new note and making it a HELOAN. At the suggestion of FiS Regulatory Services, we removed it from our LAR.

Converting, modifying or renewing a HELOC to a HE is a refinancing. Your "closed-end" modification agreement satisfied and replaced the "open-end" credit agreement. If it did not then you would still have an open-credit account that required periodic statements, billing error notices, and all the other little goodies that go along with open-end credit.

So, just so I understand...are you saying that even if we are doing a work-out modification (and is supported by a modification request, hardship letter, etc.), if it's a HELOC converting to a HELOAN...report it?

Yes.

If you are modifying it to a closed-end credit then the workout provisions of 226.9 do not apply nor does the workout provisions of 226.20 for closed end credit.

You are converting open-end credit to closed-end credit therefore you have to provide the closed end credit disclosures.

Oh dear.

Okay...to make it even more of a mess...closed-end credit disclosures were not provided. After looking further, this loan was coded as business purpose. Originally, when the HELOC was closed, it was her primary residence. She eventually moved out and it became a rental property.

It becoming a rental property after the fact does not change the purpose of the original credit. You refinanced consumer credit and consumer disclosures were required.

Let me clarify, years ago when the HELOC was done, it was her primary residence. When she applied for the modification, the house had already become a rental. When she applied for the modification, she actually submitted a copy of the rental agreement. Therefore, we considered it a business purpose loan and disclosures were not provided.

So, to sum it up on this fine Monday afternoon...we should have provided closed-end disclosures and we should report it on our LAR as a refinance?

Providing the rental agreement did not change the purpose for the original credit. It was still consumer credit and that's what you modified.

On 8/25/10, the borrower then asked for additional money to pay their past due property taxes. Feeling generous, we approved their request, but counter-offered with a HELOAN.

If this was for taxes on the "rental property" then you might be able to argue it was converted to a business purpose loan at that time and that Reg. Z did not apply when you converted it to closed-end credit.

However I would still consider it a refinancing because as I said earlier your closed-end modification agreement satisfied and replaced the open-end credit agreement.

The borrower with the rental property was not the one where we paid their taxes (that one was the subject of my original post). The rental property scenario came later. Sorry to be confusing.

But, I get what you are saying.

Bottom line - both need to be included on our LAR.

It sounds like we need to get out of our heads that just because we did a work-out modification - that doesn't make it exempt from HMDA reporting.

But now, the million dollar question is....when is a modification excluded? Is there any guidance or examples of modifications that should or shouldn't be reported?