Good morning all,

Recently our Internal Audit group completing a TRID audit. We had a number of loan files they are attempting to cite as having misidentified loan purposes. I have worked with our TRID team to investigate the cited files and noticed the Audit group is taking exception with the fact that we have called the satisfying and replacement of a HELOC with a closed-end loan (same borrowers, same dwelling) a refinance. According to them, the definition provided in 1026.37(a)(9) for a refinance references back to 1026.20(a) for the definition of refinance. In 1026.20(a) it states: "A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer."

The Audit group is stating since HELOCs would not subject to Subpart C- Closed-End Credit where 1026.20(a) is contained, then extinguishing a HELOC with a HELoan product on the same dwelling to the same borrower, does not meet the definition of a refinance and therefore should have been disclosed for TRID as a Home Equity Loan.

Has anyone else ran into this or interpreted the rule to be this way? This is the first time I have heard of this scenario being treated this way, but admittedly it has been a little bit since I really dug into the TRID rule.

Thanks in advance.

Technically, I believe your auditors are correct as the way the rule is written, the prior loan had to be subject to section 1026.20 to be considered a refinance. If you do a search, you can find several other threads discussing this same topic. That said, this is probably just a lower risk, technical finding. I would be more worried about lenders getting rescission correct than the few instances where you actually know you satisfied and replaced a HELOC.

We have quite a few that were commercial turned consumer, or refi's from an owner-finance...TRID Home Equity, Refi HMDA. It's tricky, but Adam is correct and I also agree it is certainly a low risk technical violation.

Definitely low risk. The customer doesn't care what you call it and the TRID purpose doesn't really affect anything else, like a HMDA purpose, for example.

While although I agree with both of you that this is incredibly low risk and quite technical, the citing of an issue is frustrating none-the-less for the poor folks who have to complete these disclosures for our borrowers and are trying to make heads or tails of a complex rule and will now require a complete overhaul of processes and training in place. I suppose I can wrap my head around the Comm'l deal turned Consumer since a Comm'l deal is not subject to Reg Z requirements, but I am having a real hard time swallowing the consumer HELOC turned HELoan not being considered a refi since it wasn't subject to a subsection of Reg Z. It's still a Reg Z applicable loan! *grumble* :-)

No idea why they did it that way...as usual, the full circle is always broken when non-bankers write the rules

At least this is consistent with the other inconsistencies, such as how TRID purposes don't align with HMDA purposes. And Joker, you are absolutely right that this is the result of non-bankers writing rules.

The Bureau has said that eventually, loan data (including the "purpose" label on TRID loans) will get uploaded from loan systems automatically so that regulators can do their off-premise "slice and dice" analyses. How they defined the four TRID purposes may have been influenced by that. But they did not provide any logic behind how they split hairs over the four definitions.