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#2237590 - 06/04/20 08:25 PM Modification?
Monica-in-TX Offline
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Joined: Jul 2013
Posts: 21
Good afternoon!

We have a customer who requested to lower his interest rate on his 5/1 ARM homestead loan. Because he is a good customer, the officer approved the change. The loan just adjusted for the first time and is at 4.75. The customer is requesting 3.5 for five years, to adjust every year after that. I want to make sure a modification is acceptable because I don't believe this falls under the refinancing definition in Reg Z. I know that if we were changing from a fixed to a variable we'd have to basically start over, but this is changing from a variable to a variable. There will not be a change in maturity date, but the payments will, of course, be lower. Still, none of that is considered a refi. Am I reading Reg Z 1026.20(a) correctly?

Thank you!
(Also, it is not my decision to lower this rate and I have no say in the matter. I'm just trying to make it work.)
Monica

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#2237592 - 06/04/20 08:37 PM Re: Modification? Monica-in-TX
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,277
Galveston, TX
You are adding a new variable rate feature if the current loan is now adjusting annually and the modification is going to have 5 years to the next adjustment.

1026.20(a) - Comment 3(ii)(B) - Adds a variable-rate feature to the obligation.
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#2237593 - 06/04/20 08:38 PM Re: Modification? Monica-in-TX
Monica-in-TX Offline
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Joined: Jul 2013
Posts: 21
So if we just replaced the 4.75 with 3.5 and continued to adjust annually, that's not adding a variable rate feature, correct?

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#2237594 - 06/04/20 08:40 PM Re: Modification? Monica-in-TX
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,277
Galveston, TX
Yes - that would be true.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2237595 - 06/04/20 08:41 PM Re: Modification? Monica-in-TX
Monica-in-TX Offline
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Joined: Jul 2013
Posts: 21
Thank you for the replies! This helped tremendously.

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