I am having trouble coming to a decision on whether we should be giving disclosures on a loan modification if the rate will be increasing. We do 5 year Balloon loans and lately we have been decreasing the rate on the modification. I know that this does not require disclosures. What I am not sure about is if we increase the rate (not as result of delinquency) and it causes the payment amount to increase.

This is taken from Reg Z 1026.20:

(a) Refinancings. A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing:

(1) A renewal of a single payment obligation with no change in the original terms.

(2) A reduction in the annual percentage rate with a corresponding change in the payment schedule.

(3) An agreement involving a court proceeding.

(4) A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in §1026.4(d).

(5) The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart.

My understanding is that if the loan does not meet the definition of a refinance (satisfying and replacing the old note) then you simply have a modification. The only disclosures I am aware of for a modification is an ARM Disclosure and CHARM Booklet if you are modifying the loan from a fixed rate to an adjustable rate and a ROR if you are advancing new funds from the loan, those funds are rescindable.

Official Interpretation #3(ii)(B) under Section 1026.20(a) says that the addition of a variable rate feature constitutes a refinancing. Accordingly, you will need to give full transaction disclosures (all relevant parts of Section 1026.18) in addition to the ARM program disclosure and CHARM booklet.