We offer a few types of loan modifications;

1) Rate only.
2) Rate and reduced term (ex: going from 30 to 15 years).
3) Balance pay down / curtailment.
4) Rate and Balance pay down / curtailment.

These are not HARP or other workout modifications. Basically the borrower doesn't want to refinance.

Can anyone share with me what documents and disclosures are required?

Or their process / procedure?

I'm interested in knowing the answer to this as well.

Specifically, would a rate modification require new disclosures?

Well there are two angles that must be explored.

1. You really need to get with your legal counsel to determine the best way to do the types of modifications you have in mind. What documents are recommended by legal to ensure that you remain with a legally binding obligation and that you do not jeopardize your lien position. Much of this will be based on State law, local customs, case law, etc. There will not be a SOP that someone can share that will be a one size fits all.

2. Once you have accomplished that task, then you will have to weigh your actions against the definition of a refinance in 1026.20. If what you have to do to amend these specific loans qualifies as a refinance, then all of Regulation Z, including TRID, will apply to the new transaction.

We have an existing borrower asking if we would lower the rate on his 5/1 ARM (still in first 5 years of fixed rate term) portfolio loan. We would like to do so (rather than have him refinance elsewhere.) I've been asked if this is a refinance and/or if any disclosures are needed. We are requiring a new appraisal and credit report that we would charge the borrower, but no other fees. and no other change to the terms of the existing loan.

I'm wondering if 1026.20(a)(2) applies, so would not be considered a refinance. Or if because it is an ARM, and the rate can subsequently change (in accordance with the original terms disclosed) then this exemption does not apply. Obviously refinancing would be cleaner, but wondering if a reduction in rate can avoid the need for a new loan and new disclosures.

If all you are doing is lowering the rate with a corresponding change in the payment amount - it is not a refinance:

1026.20(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:

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

As long as you are not adding a variable rate feature that has not been previously disclosed, then this would still hold true on an ARM loan.

If we lower the interest rate for the borrower and charge a fee to do so, would we have to provide new TRID disclosures? Does the borrower need to sign a new agreement or note to make this change?

I should have added that the rate is a fixed to maturity and will remain a fixed to maturity.

I'd modify that all day long, but you may need to check state law.

How do I disclose the modification? Other than any state laws, what other disclosures are required in this case?

None. There is no 'new money' so no ROR...that's typically the only other doc I would ever have. It's hard for me to answer for you however, because I doubt we are in the same state.

I would perhaps check with your legal counsel.

During a loan modification, we charge a conversion fee. Would it cause any problems to finance the conversion fee into the loan? Or should it always be paid by the borrower?

I finance the fee more often than not.

I just want to follow up on this thread. I want to make sure that I am not required to restate the APR when I modify the loan to lower the interest rate. I am charging a fee to lower the rate and occasionally, we roll the fee back into the principal balance. Is this considered extending new money?