Hello,

It has always been my understanding that modifications, renewals, increases, change it terms, etc to already existing loans were not HMDA reportable.

We have a number of helocs that are having the loan amounts increased and documented by a change in terms agreement. The loans are not technically satisfied and replaced in the system and they keep the same loan number. The interest rate is variable after a 12 month intro promotion rate. I have been marking these as modifications and not reporting them. However our Regulatory Management group interprets these loans as refinances, even though they are not satisfied and replaced.

Am I missing something? Thanks.

DNegron

You need to find out their basis for this opinion.

Official Interpretation

2(p) Refinancing

1. General. Section 1003.2(p) defines a refinancing as a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower. Except as described in comment 2(p)-2, whether a refinancing has occurred is determined by reference to whether, based on the parties' contract and applicable law, the original debt obligation has been satisfied or replaced by a new debt obligation. Whether the original lien is satisfied is irrelevant.

The loans are not technically satisfied and replaced in the system and they keep the same loan number.

This has absolutely no bearing on determining if the transaction is a refinancing. That is simply an internal tracking process.

How are you accomplishing these changes? Are you doing them with an actual change in terms agreement or are you doing them with a new note?

If you are doing them with a new note then I would agree with your Regulatory Management Team. If you are doing them with an actual change in terms agreement then see Randy's post.

Dan,

They are done with an actual change in terms agreement, "EquityReserve Credit Agreement and Disclosure Change in Terms Agreement". Same loan number, new loan amount and new maturity date, referencing the previous terms in the "Description of Change in Terms".

Now I'm confused as to what "satisfies and replaced" means.

Except as described in comment 2(p)-2, whether a refinancing has occurred is determined by reference to whether, based on the parties' contract and applicable law, the original debt obligation has been satisfied or replaced by a new debt obligation. Whether the original lien is satisfied is irrelevant.

So if a $10k heloc is bumped 6 months down the line to $20k, does that mean the initial $10k has been satisfied and is being replaced by a "new" $20k commitment?

Not if done with a change in terms to the original agreement. However if the change in terms document saisifies and replaces the original agreement then it would be a refinancing.

That's why your understanding of based on the parties' contract and applicable law, is vital. If you are not sure if the change in term contract replaces the original agreement then I would advise a consultation with the bank's attorney.

Don't over think this. It's purely based on contract law.

Did the new obligation satisfy, replace, extinguish the old obligation? If so, it's a refinancing. If the old obligation still legally stands but has been altered somehow, that's not a refinancing.

Let me put it another way:
Was Loan A wiped out by Loan B? OR
Did you attach something to Loan A (a modification, extension, etc.)

When you go to court will you need Loan A and this new agreement or will the new agreement stand on it's own?

I'd say the old obligation has been altered by increasing the original credit limit but others in compliance don't agree.

Here is an abbreviated example of the terms on the CIT.


The borrower has requested and the lender has agreed to increase the maximum amount available on the Equity Reserve Line from $400,000 to $920,000. The Maturity date is now extended to May 17, 2059. Modified repayment terms are set forth in the paragraph below.

These loans have 10 year draw period and then another 30 year repayment period. Borrowers are usually taking advantage of an intro rate for 12 months each time they request an increase. This example alone has increased 4 times, all under the same loan number since 2014.

I assume that there is a clause that says something like "All other terms and conditions disclosed in the Note dated xx/xx/xx continue to apply" along with the specific terms that are being modified??

Here's what I found.

Continuing Validity.
Except as expressly changed by this Agreement, the terms of the original obligation or obligations , including all agreements evidenced or securing the obligation(s), remain unchanged, and in full force and effect.

Then your original obligation has not been replaced.

FWIW I agree. ^^^^

Me too. That's a modification, not a refinancing.

Thanks everyone.

An update for anyone that cares.

I sent the verbiage found in our Change in Terms to my higher ups to discuss with Reg Mgmt and I expressed that others (you guys) in the HMDA world would not consider these transactions to be refinances but modifications and NOT reportable.

As of right now, we are still reporting all 300 plus for 2019.

Blehhh.