Would new GFE/TIL be sent if the loan term increases on a modification?

the interest rate is decreasing

The transaction in question is either a refinancing or it is not under 1026.20. I am not going to opine given the limited information provided. If you need to determine whether the current legal obligation will be satisfied and replaced by a new obligation, you should be asking that of your legal counsel. If it is not and the remainder of the triggers listed in 1026.20 are not pulled, then the answer would be no.

Unfortunately, I do not have legal counsel to turn to. There is no new money...just lowering the interest rate and extending the term.

If this was originally a fixed rate loan and those are the only things that the modification is going to do, then chances are pretty good that it is not a refinance.

Sounds almost like a workout to me.

It was originally fixed rate and staying one...

You CAN modify the loan the way you describe. Don't replace the loan with a new loan (that's a refinancing). Instead, prepare a modification/extension agreement that legally attaches to the original note. That's not a disclosable trigger. However, if the loan is secured by improved real estate, flood insurance applies.

We follow the recommendation Dave suggested when doing modifications.

Thank you!!

I have read various blogs on here about section 1026.20(a) and questions about whether a situation is a refinance or not when doing a modification and I understand what the general definition of a refinance is. I have not seen any reference to one part of the commentary for 1026.20(a)(1)(2) Exceptions. A transaction is subject to §1026.20(a) only if it meets the general definition of a refinancing. Section 1026.20(a)(1) through (5) lists 5 events that are not treated as refinancings, even if they are accomplished by cancellation of the old obligation and substitution of a new one. Further commentary to this section (specifically the last sentence) states this:

2 Corresponding change. A corresponding change in the payment schedule to implement a lower annual percentage rate would be a shortening of the maturity, or a reduction in the payment amount or the number of payments of an obligation. The exception in §1026.20(a)(2) does not apply if the maturity is lengthened, or if the payment amount or number of payments is increased beyond that remaining on the existing transaction.

I may be confused, but the last sentence states that if a maturity is lengthened OR a payment amount OR number of payments is increased beyond that remaining on the existing transaction then the exception doesn't apply.

So my question is this, if we are modifying to increase a construction loan, but not increasing the maturity date and are charging fees that would increase the APR (I know this is a different section than 1026.20), wouldn't the fact that the payment amount is increasing (final payment increases due to increased loan amount and finance charge) require a new TIL disclosure for a modification agreement? Along with that the APR is increasing due to the modification fee we are charging.

If Regulation Z doesn't apply, then couldn't this be a UDAAP issue if we don't disclose the increased payment and APR since both are not for the benefit of the borrower?

I have the same question - this is an existing draw down LOC with additional funds needed to complete the construction (do not have the permanent financing)

Can anyone give their opinion on this? I would really like to see what others interpret this as. Thanks!

See if this thread helps.

Thanks Richard, that thread was helpful along with the FDIC manual information.

I'm still questioning the #2 commentary about increasing the payment beyond that remaining on the existing transaction because in this case we are increasing the loan amount, which does increase the balloon payment beyond that remaining on the existing transaction.

1026.20(a)(1) states that (a)1-5 are not considered refinancing - specifically #2 states if the APR decreases and the corresponding payment or maturity does the same - that is not considered a refi.

However commentary #20(a)(2) states that the exception DOES NOT APPLY to INCREASES to the maturity OR payment amount OR number of payments beyond that remaining on the existing transaction.

To me that means that an INCREASE to the loan amount (handled through a modification agreement), IS a refi because it increases the final payment beyond that remaining on the existing transaction since the final balloon payment will be increased due to the loan amount increase and the additional finance charge.

None of the threads that i have read have commented specifically the exception not applying to increases in maturity, payment amount or payment numbers as stated in the 20(a)(2) commentary.

Does anyone else agree or totally disagree? If I am missing something in this commentary, please let me know!

Thanks!

I think you are reading OI # 2 to Section 1026.20(a)(2) out of context and that this interpretation is irrelevant to the transaction at hand. "The exception" is for decreases in the APR effected by the an action that would ordinarily constitute a refinancing, i.e. the old obligation is satisfied and replaced. The loan situation you described above involves neither a reduction in the APR nor satisfaction and replacement of the old note.

Unless you are satisfying and replacing OR you are adding a VR feature, you don't have a "refinancing."