A closed-end 12 mo. single payment loan matures. Bank and borrower agree to a change in terms to extend the maturity another year. This alone would not require redisclosure, correct?

If the bank charged a higher rate than previously disclosed, such as going from 7.25 fixed to 7.5 fixed, or if any new money is added, this would require redisclosure, correct?

For existing loans subject to TRID that require redisclosure as above, do the LE/CD and timing rules apply just as a regular origination? Or, is a regular TIL with updated payment info and fed box sufficient?

Are there any additional compliance requirements other than TRID to consider in these situations?

If the transaction will be a refinancing that is subject to TILA and is (and will continue to be) secured by real estate, TRID will apply, and you treat it just like any request to refinance a loan. It starts with an application, which triggers a loan estimate ... and so on.

Under 1026.20(a), if a modification or renewal is completed without cancellation of the old obligation and substitution of a new one, "a new transaction subject to new disclosures results if the financial institution: increases the rate based on a variable rate feature that was not previously disclosed; or adds a variable rate feature to the obligation."

"If, at the time a loan is renewed, the rate is increased, the increase is not considered a variable rate feature. It is the cost of renewal, similar to a flat fee, as long as the new rate remains fixed during the remaining life of the loan...."

Neither an increase in the fixed rate nor the addition of "new money" will make the transaction a refinancing unless there is a new obligation that replaces and cancels the old obligation.

The quoted and underlined text in my response above is directly from the Compliance Examination Manual, page. V-1.36 of the FDIC's edition.

Also - was this performed after the loan matured?

Hypothetically speaking let's say it was. What difference would that make?

Whether an extension or modification can be used AFTER maturity is a question of state law and/or state case law.

Dredging this up again....
So, if a modification is done that results in a higher APR, re-disclosure isn't required?? No new note, no new money. Just modifying rate and terms.

That would be correct

I have a couple interesting scenarios that relate to this topic that I wanted to get some other opinions on.

(1) Existing lot loan with outstanding balance of approx. $40k. Lot loan matures next year. Borrower needs money to buy construction materials for house to be built on lot, and needs $30k to purchase materials immediately to take advantage of current market prices (afraid of Hurricane related cost increases). Bank modifies loan to give extra money to borrower and moves the maturity date of the loan up until 30 days from modification (Construction loan will take out existing monies at that point). Is the modification for the materials subject to TRID?

(2) Existing HELOC with 10 year draw and 15 year payoff. Bank wants to extend draw period for 90-days at interest only rate, which will push back maturity on the entire loan by 3 months. Is this "modification" subject to TRID?

Thank you for your time and assistance.

1) Depends on whether or not you are extinguishing the current obligation and replacing it with a new obligation under State law. Unless your security agreement (Deed or Mortgage) supports future advances, I would have no idea how you would do this.

2) Open-end credit is not subject to TRID.

(1) I guess the deed is supposed to be revised as well. But, basically Bank is extending new money through a modification or change in terms agreement and there is sufficient equity in the lot to do so. So, if there is a replacement of the existing obligation under State law, then it is a refinance. Otherwise, it is not.

(2) Okay, thank you. I think I see that now. Because it is a line that can be drawn up and then paid down and drawn up again, technically. This is even though there is a defined maturity for the note and the borrower probably will just draw until the limit and then repay whatever is drawn during the 15-year period.

When employees get a loan with our bank they have to sign an agreement that states if they ever leave employment, their interest rate will be increased. This goes for mortgage and consumer (i.e. car) loans. On these loans, do we have to re-disclose the entire loan because the rate is increasing and do we have to give them a new loan payment or can we do a "modification" stating the new interest rate and payment amount (or keep the payment amount the same)?

If they have signed an agreement when they got the loan, Regulation Z requires that adjustable rate disclosures to have already been given at consummation and how the increase will impact the loan has already been disclosed. They are no new disclosures required, except for a mortgage loan, then the adjustable rate disclosures under 1026.20(c) will have to be given with the proper lead time.

I thought the fact that these preferred rate loans are not based on an index or formula made them not subject to the 1026.20(c) or (d) disclosures based on the commentary 1026.20(c)(1)(ii)-3 and 1026.20(d)(1)(ii)-2.

You are correct.

Thank you. I'm feeling better now.

Thank you!

Bump...

Scenario:

Primary residence construction Loan, initially set up for 12 months, interest only monthly, 5.0% rate. TRID loan with LE/CD, etc.

Initially no intention of end financing.

Home is complete, borrower now has requested a 3 year fixed rate (4.625% - lower than current rate) with interest only payments. Borrower gets large annual bonus and has already paid down principal significantly from construction costs. No concerns with the loan request.

Question is documentation.... can I extend/modify existing note with simple form with change in rate and maturity date (still interest only monthly payments) or do I need new LE/CD, etc.?

We do not do many construction loans, so sorry if this is easy question.

If you are not replacing and extinguishing the original obligation or adding or changing a variable rate feature, it is not a refinancing under 1026.20(a) and it would not trigger new disclosures.

In your reply, would the fact that the loan maturity would be changed to a 3 yr. note beyond the exemption for HPML of initial construction of a
dwelling allowing for only a 12 mo. or less rule make this subject to HPML rules?

A construction loan of 12 mos or less can be renewed for another 12 mos. or less under TRID is that correct?

If you do not extinguish the original note, you are not refinancing and will not be subject to any of the other rules.

Sorry to bring this back up. I think i know the answer but i feel more comfortable it someone else confirms for me. We have a construction loan that will mature. We are lowering rate but we are charging documents and appraisal fees, can we do a modification to term it out (permanent phase) or since we are charging these fees do we need to do TRID (LE & CD)?

Thanks so much for the help!

Does your modification qualify as a refinance under 1026.20(a)? If not, it isn't subject to Z and TRID disclosures aren't required.

Word of caution: I wouldn't make a habit of this seemingly loophole as I doubt examiners would look favorably on a regular practice of this.

I don't think it does all we are doing in converting from a 1 year construction to permanent. We are lowering interest rate, but my worries were the fees and if we need to disclose them on an LE.

And Adam has given you the answer.

At one time in the foggy past, the Fed proposed to eliminate this loophole, and may have been targeting specifically modifications transitioning loans from construction to permanent financing (my memory is vague on whether other types of modifications were targeted). The reason for the proposal is that the consumer never gets disclosures concerning the perm financing, which can involve ginormous amounts of interest over the life of a 30-year loan, along with the costs you've expressed concern over. The costs, if passed to the consumer, get disclosed sooner or later, but interest doesn't.

Nothing ever came of the proposal. If the Bureau were to propose a similar change in today's environment, I have no doubt the comments from consumers and consumer advocates would greatly outnumber those from the mortgage lending industry.

And from what I have read, modifying construction loans to make them permanent is standard practice in some parts of the country.