We are having some confusion with the CRA reportable transactions and their definitions and am hoping someone can help. An origination is a brand new loan; a renewal (extending the hard maturity date) is treated as an origination; a refinance (payoff, satisfy and close existing loan and replace with a new loan) is treated as an origination; and an increase (either on an existing loan - renewal or no renewal - or as part of a refinance).

We have a group of existing loans that originated and were reported in prior years for CRA. A new transaction is occurring in this reporting year and there is disagreement on which ones are reportable.

1) We have a demand line that originated/reported in 2012 for $500k. This year it was increased to $600k. The account number remained the same (was not paid off/closed) but a new promissory note was signed. When looking at the example in the regulation, one opinion believes that the annual review of the original $500k amount would not qualify as CRA reportable since it was not refinanced or renewed and only the increase of $100k is reportable. The second opinion believes that since a new note was written for the existing line that it then qualifies as a refinance and the whole $600 should be reported. But if that's the case then, if the credit limit is reduced and a new note is written, it would qualify as a refinance and be reportable then, correct??

2) We also have a hard maturity line that originated/reported in 2013 for $100k with a 2/1/2016 maturity date. This year it was increased to $150k and a new note was written on the existing line but the maturity date remained the same. Again, one opinion believes that the existing credit line was not renewed so only the increase of $50k would be reported. The second opinion is claiming that the presence of a new note means that it qualifies as a refinance and the whole amount of $150k should be reported.

3) We have a demand line that originated/reported in 2013 and this year we are changing it to a hard maturity; credit limit remains the same. Since demand lines have no maturity, then it doesn't qualify as a renewal so one opinion believes this is not reportable at all. The second opinion believes that since there is a new note, that it's a refinance and the loan is reportable.

These differences in opinion would have a dramatic effect on our LAR so I want to be sure that we are complying with the definitions and applying them consistently with the various loan types and transactions. If a refinance is the payoff and satisfaction of one loan with another loan, then a new promissory note on an existing loan that is not being paid off and satisfied doesn't appear to meet the definition of a refinance.

Any help you can provide is greatly appreciated!! Thank you!!

Please, are any of the experts willing to help me with this question. I am looking at a significant change to my LAR right before submission and need some thoughtful guidance from you. Any help you can give me is so greatly appreciated!

I don't consider myself an "expert" so you might want to wait for others to weigh in on this, however I believe the second opinion in each instance is correct.

Sorry...I have been offline for a few days on projects. I will look at this today.

Fixing for legibility:

1) We have a demand line that originated/reported in 2012 for $500k. This year it was increased to $600k. The account number remained the same (was not paid off/closed) but a new promissory note was signed. When looking at the example in the regulation, one opinion believes that the annual review of the original $500k amount would not qualify as CRA reportable since it was not refinanced or renewed and only the increase of $100k is reportable. The second opinion believes that since a new note was written for the existing line that it then qualifies as a refinance and the whole $600 should be reported. But if that's the case then, if the credit limit is reduced and a new note is written, it would qualify as a refinance and be reportable then, correct??

ANSWER: Note number does not matter, it is the legal note that matters. Demand lines are challenging but because you have a new note, I would report the new note for $600.

2) We also have a hard maturity line that originated/reported in 2013 for $100k with a 2/1/2016 maturity date. This year it was increased to $150k and a new note was written on the existing line but the maturity date remained the same. Again, one opinion believes that the existing credit line was not renewed so only the increase of $50k would be reported. The second opinion is claiming that the presence of a new note means that it qualifies as a refinance and the whole amount of $150k should be reported.

ANSWER: New note that replaced prior note - report for new amount

3) We have a demand line that originated/reported in 2013 and this year we are changing it to a hard maturity; credit limit remains the same. Since demand lines have no maturity, then it doesn't qualify as a renewal so one opinion believes this is not reportable at all. The second opinion believes that since there is a new note, that it's a refinance and the loan is reportable.

ANSWER: New note with hard maturity that replaced demand line...report the new note. The prior note was paid off and replaced with the new note...report the new note.

I don't understand your comment that a new promissory note on an existing loan "not being paid off and satisfied" is not a refinance. A new note will ordinarily pay off and satisfy the prior note. What is actually happening? It doesn't matter that there was old money that stays outstanding under the new note.

We use Laser Pro documents and there are two types of modifications that are available. A "Change in Terms" which they are only allowed 2 during the lifetime of the obligation, or a new "Promissory Note" - the new note has a Prior Note disclosure that states the debt is being restated but should not be construed to deem paid or forgiven the principle and interest owed. Now the regulatory guidance indicated that a refinance is when the existing obligation or note is satisfied and a new note written". I was focused on obligation meaning the debt needed to be paid off to be satisfied and a brand new obligation must replace it, meaning if I looked on my books or the customer's credit report, the existing obligation is satisfied and no longer exists and a new obligation has replaced it. So if I have an obligation that originated in 2013 and I am making changes to that obligation via an amendment, modification, change in terms, or restated or amended note, I am not satisfying the original obligation, merely changing its terms - so I am treating it like a modification and not a refinance. And since they can issue one of these new notes with prior note disclosure at any time and for any reason - change in limit, maturity date, rate, collateral, guarantor, even a covenant change, I didn't believe that was complying with the intent of the regulation to new extensions of credit. I have one now where the only change was to reduce the servicing requirements from quarterly to annually and they produced one of these notes. If the new note is treated like a new obligation and not a modification of an existing obligation and the new note can be issued for any minor change, then that will have a dramatic impact on my LAR right before submission and I just need to be confident that this is what was intended in the regulation.

What note are you relying on as your legal obligation? The new note. It counts. Don't get hung up on legal language that is clarifying that the bank is not considering outstanding funds to have been paid off in a legal sense. The bank is clarifying (in unusual terms) that the customer still owes the money.

Note number does not matter. Would your new note be a legal obligation that has to be produced in court?

For CRA, in general,

If a new note is issued in a subsequent year, it is usually reportable. Doing this repeatedly to increase reportable numbers of small business loans will be suspect.

>Modifications that add money or extend maturity are reportable (unlike HMDA).

>Notes that add money or extend maturity are reportable.

>Notes or modifications that do not add funds or extend maturity are not reportable, as in your example of changing terms such as covenant changes, guarantor, collateral, rate.

So if I have a demand line of credit that originated in 2012 for $500k and this year I'm increasing it to $600k. Would the loan amount reported be different depending on if I use a modification versus a note? A modification, report the increase, or a note, report the entire amount?

No difference. If truly a demand with no maturity, report only the new $ in either case.

New $ being the $600,000 and not the amount of the increase ... correct?