Would a modification of a time note to an amortizing term note be considered a refinance for Reg Z?

Not unless it extinguishes and replaces the current obligation under State law - see 1026.20(a).

For closed-end credit, a "refinancing" is one of the events specified in Section 1026.20(a), including the OI.

If we are increasing interest rate can we do a modification or do we have to re disclose with the new interest rate?

Whether a refinancing has occurred is determined by reference to whether the original obligation has been satisfied or extinguished and replaced by a new obligation, based on the parties' contract and applicable law.

As Randy stated the determination of a refinancing is if the original obligation is being satisfied and a replaced.

There is one caveat however, if this is a workout agreement and you are increasing the rate then that would be a refinancing regardless how you accomplish increasing the rate.

Paragraph 20(a)(4)

1. Workout agreements. A workout agreement is not a refinancing unless the annual percentage rate is increased or additional credit is advanced beyond amounts already accrued plus insurance premiums.

Also, there can be exceptions to the normal "extinguish and replace" standard if the loan has a variable rate. See OI #3.

"what if" the loan will be maturing and we are extending maturity date and increasing the interest rate about 2 %. Can we just do a Change in Terms agreement versus a "refi"?

A typical modification, unless you are adding or changing a variable rate feature, does not usually trigger a refinance under Regulation Z, but the only person that can really answer that would be your legal counsel based on State law and the documents you are planning on using.

Sorry so as i am sure you know this....according to this the following would be ok to do a change in term not refi... however we are changing the original term "interest rate" increase. Wouldn't this trigger "the interest rate increase" a refi versus just a change in terms agreement?


a) Refinancings. 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. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing:

(1) A renewal of a single payment obligation with no change in the original terms.

(2) A reduction in the annual percentage rate with a corresponding change in the payment schedule.

(3) An agreement involving a court proceeding.

(4) A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in §1026.4(d).

(5) The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart.

sorry I am just trying to understand and make sure we are getting it correct. Again thanks for all the help!

Does this question relate to one loan, or are you writing a policy/procedure?

Assuming that you are trying to decide how to disclose a single loan,
1. is this loan a workout?
2. before or after the changes you are making, did/will this loan have a variable interest rate?

If your answers to these two questions are "no", then you are only concerned with the general rule, not the exceptions. The general rule hinges on the way your state law views the changes you are making to the legal obligation between the bank and this borrower.

What's most important is not what you're changing, but how you're doing it. If the borrower will sign a whole new set of the same documents that created the loan and then you mark the old documents "paid", "cancelled", or in some other way that renders them irrelevant in the eyes of a state court, then you have what Reg. Z declares to be a "refinancing."

More likely, you are not voiding the old credit documents in their entirety and it will not be necessary to refile the deed of trust. Instead, the borrower will sign a supplemental agreement that says (more or less) that all the original terms of the loan remain in force without interruption, except for the one, two, or several terms that will change. It doesn't matter whether these changes are drastic. You could, for example, extend the term from 30 days to 30 years, increase the interest rate from 2% to 200%, or change the monthly payments by a tiny fraction to a large multiple of the previous payment amount. As long as the changes are surgical, you are simply modifying the old contract and Reg. Z does not call it a "refinancing."