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#2086481 - 07/01/16 07:46 PM Purpose on Renewals with New Money
Banker K, CRCM Offline
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Joined: Jan 2010
Posts: 293
Oklahoma
Currently we report on our LAR any renewals with new money. We do not 'satisfy & replace' the old Note; instead, we prepare a "renewal note" showing the changed loan amount and dates and any change in interest rate (customer's credit is reassessed), and file a "modification of mortgage". Both documents reference the original agreements.

So, would we still report renewals with new money in 2018?

If so, do we report the purpose as it relates to the new money only? (That is our current procedure).
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#2086489 - 07/01/16 08:15 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Happy Birthday #12 Offline
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In my opinion, if these are true renewals, you shouldn't be reporting them now or when the rules change in 2018.
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#2086535 - 07/05/16 01:31 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Banker K, CRCM Offline
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Oklahoma
This is one of my least favorite responses, but "we have always done it this way". Both our external auditors and federal examiners have never found issue with it.

The reasoning was that other consumer regs would make us disclose these loans as 'refis' (ex: renew with new money, then TRID disclosures are triggered, HPML testing, HOEPA testing, etc.). The new money has not been reported on the LAR, so at time of the renewal/increase, this is when it makes its debut.
It's been tricky and no issue has been found with it to date, but since HMDA is revamping I figured now would be a good time to get clarity on the topic.

Would appreciate other thoughts on this too.
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#2086540 - 07/05/16 01:43 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Do you have a legal opinion that your new note does not satisfy and replace your prior note?
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#2123080 - 03/22/17 03:18 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Ree Offline
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Joined: Mar 2016
Posts: 56
I too have a similar question regarding this topic. What about the case of a construction loan where the initial intent was to get permanent financing, but later a modification is done instead rather than a whole new loan? It's rare when I see it but, I have seen this done on business loans.

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#2123115 - 03/22/17 04:45 PM Re: Purpose on Renewals with New Money Banker K, CRCM
David Dickinson Offline
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Central City, NE
The current & new rules state that modifications are not reportable. The current rules have a FAQ that says "BUT, if you modify a construction loan into a perm loan, it is reportable as a purchase." The new rules don't state this (yet). I expect the regulators would want it reported, but I can't point to any regulation/commentary/FAQ for the new rules that says to do so. In fact, I can point to several sources that say don't report modifications [Commentary to §1003.2(d) #2, Commentary to §1003.2(o) #2 and Commentary to §1003.2(p) #1(iii)].
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#2123119 - 03/22/17 05:12 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Truffle Royale Offline

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I'm with Kathleen that you need to clarify what 'satisfy and replace' means.

I'm also curious what you're reporting these on your LAR as.
If you're calling it a REFI then you are, in fact, acknowledging that you're satisfying and replacing the original note.
If it's a true modification, it doesn't matter 'how you've always done it' because reporting them on your LAR is incorrect.

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#2123160 - 03/22/17 07:28 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Ree Offline
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Joined: Mar 2016
Posts: 56
David, that exact reason you gave "The new rules don't state this (yet)", is the exact reason why I'm struggling with how to report. Currently I'm rewriting procedures for various departments at my institution for the new HMDA requirements and am unsure how to explain how to handle this situation. On one hand I think we could easily argue reporting if the situation presents itself and leaving our current procedure in place. However, it would be one less LAR entry that would have to be made. It's so funny how the new Reg requirements provide so many examples to explain how to report the quirky scenario's, yet leave out the one that was already explained in a previous FAQ.

On another subject I'm struggling with the new requirement for reporting the full loan amount as well. Not sure on how to report loan amounts that may include cents. I guess that is a whole new topic that I should create on here though (If not already). lol

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#2123192 - 03/22/17 09:28 PM Re: Purpose on Renewals with New Money Truffle Royale
David Dickinson Offline
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Central City, NE
In reference to Truffle's last post:
Today's rule: Report as a purchase - not as a refinance.
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#2123215 - 03/23/17 03:08 AM Re: Purpose on Renewals with New Money Banker K, CRCM
Truffle Royale Offline

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You lost me there, David. If they're satisfying and replacing an existing mortgage and adding new money, how is that a purchase?

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#2123224 - 03/23/17 12:37 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Dan Persfull Offline
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Bloomington, IN
TR, you and David crossed posts. Your response was to Banker K concerning their renewals and David's response was to sdouthitt concerning modifying a construction loan.

In Banker K's scenario the renewals would most likely be refinances but in sdouthitt's scenario the modification of the construction loan would be a reportable purchase.
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#2123232 - 03/23/17 01:17 PM Re: Purpose on Renewals with New Money Banker K, CRCM
David Dickinson Offline
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Central City, NE
Thanks for the clarification Dan. Since Truffle's post was 30 minutes after mine, I assumed it was in response to what I said. Now it makes sense.
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#2123353 - 03/23/17 07:34 PM Re: Purpose on Renewals with New Money Banker K, CRCM
Banker K, CRCM Offline
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Posts: 293
Oklahoma
@ Dan, thank you for your thoughts. We do report the renewal/increases as refinancings and have decided to continue to do so.

@ others...I can't clarify what we do more than I already have in my post and comments above. No, a legal opinion has not been purchased for this situation.
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#2156524 - 12/07/17 09:49 PM Re: Purpose on Renewals with New Money Banker K, CRCM
KStogniew Offline
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Joined: Mar 2007
Posts: 9
I wonder if we can open this discussion back up now that we have new commentary around MECA/CEMAs. In my state, it is sometimes practice to issue a new note for an increase on an existing loan, and then modify the existing and new note into a Consolidation Note that references the existing obligations (intends not to satisfy and replace, although one could certainly argue that it does). The way I interpret the 9/17 final rule supplemental info cited below, is that the new note would be reportable, but not the consolidation (if its not a ref).

"As explained above, a borrower may enter into a CEMA that consolidates both the prior debt and new funds. The new funds are added through a preliminary credit transaction in which the borrower obtains an extension of credit providing only the new funds. Then, the CEMA consolidates the new-funds transaction with the original mortgage loan into a single loan. Because the initial
transaction is an extension of credit, it would be reportable under revised Regulation C if it were otherwise a covered loan. Regarding New York CEMAs, this would lead to double reporting of the new funds, once through reporting of the preliminary transaction, and again through reporting of the full New York CEMA, which includes the new funds....Therefore, the Bureau believes it is appropriate to require that only the New York CEMA, i.e., the single, consolidated loan that results after both sequential transactions are completed, be reported...To achieve this outcome, the Bureau is adopting § 1003.3(c)(13), which
provides that any transaction providing or, in the case of an application, proposing to provide new funds in advance of a consolidation as part of a New York CEMA is an excluded transaction. The Bureau also adopts proposed comment 3(c)(13)–1
explaining the application of the new § 1003.3(c)(13) exclusion...In addition, the Bureau chose not to change the treatment of preliminary, new money transactions regarding CEMAs made pursuant to the law of States other than New York because the problem of double counting does not exist when the CEMA is not itself being reported, as is the case outside New York."

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