I need help understanding the difference between refinancing, renewals and workouts...

We are using new loan processing software and now have two distinct Notes available - "Refinance Note" and "Renewal Note". It seems to have the same language as except that in the body the Refinance Notes says it is refinancing Note #XXXX and the Renewal Notes says it is renewing Note #XXXX. The Renewal Note option allows us to change all the terms completely. For example, we could go from a 5 year balloon loan to a 7/1 ARM loan using the Renewal Note option. Basically, it is being used anytime we have no interest in changing the loan number. We are getting with an attorney to review the different notes so we can determine if the new Note is considered to have replaced the previous obligation, but my question is - Is it really that easy that a loan would be a "Renewal" under regulation Z if the Note says "Renewal" on it and therefore is not subject to disclosure requirements?

What about Workouts? Is this something that we just say in the loan documentation that it is a workout and viola it isn't subject to Reg. Z disclosure requirements (if the APR isn't increased/no additional credit is advanced)? Or does it have to be classified on our books as being a Troubled Debt Restructure?

Does the 1026.20(a)1-5 mean that these are not considered refinancings even if the existing obligation satisfies and replaces the existing obligation to the same consumer (subject to any additional rules in the Official Interpretation)?

If this is so, could I have a renewal or workout for Reg Z purposes but have a HMDA reportable refinancing and would report the rate spread as NA since it is not subject to disclosure requirements under Regulation Z?

Any help you can provide that would help me understand this subject would be greatly appreciated!!!

The words "renewal", "modification", and "workout" are not defined in Regulation Z. The only word with a legal meaning is "refinancing." Printing the word "renewal" on a note does not change the nature of the transaction or your obligations under Section 1026.20(a). It's a very good idea to have your attorney review every word of your contract documents plus the manner in which you will use them. In this case, you want counsel to help you draw the dividing line between a "refinancing" and everything else.

Thanks for that response. Hopefully the attorney we are getting with will help us establish this.

Since it appears that in some circumstances that a transaction is not considered a refinance "even if accomplished by cancellation of the old obligation and substitution of a new one." does this mean we have a TRID violation if the LE and CD went out? I can think of consumer land loans that probably met the "renewal" exception, but an LE and CD went out.

It is never a violation to disclose when it is not required under the regulation.

We have that same option [refinance note/renewal note]. I've never convinced myself that the 'renewal' note doesn't satisfy the previous debt. To accomplish that, I've always used the 'modification' option.

We do a number of work-outs, but the majority of them will still be HMDA reportable as a refinance even if we don't disclose them like a Reg Z refinance, because we seldom ever do them by means of a note modification.

Also, regarding TDR's. Don't let your LO's get confused here. Way too many 'TDR-classified' loans are 'work-out's' in the mind of a LO...but are in no way shape or form a 'work-out' with the customer. Often they are simply upside down loans and it's an accounting and reporting issue more than it is a debt in trouble of foreclosure.

Just my two cents worth from the confusing subjects at hand.

Are you using OnBoard for loan processing?

I am not.