Hello:

We have a handful of loans that are all types of credit (real estate secured open end, real estate secured closed end, non real estate secured open and and non real estate secured open end) that are tied to LIBOR. I have been asked to provide our LIBOR transition team with all of the requirements for the change in terms notices that will need to be sent. This is proving to be VERY challenging and my document is becoming just as confusing as the Reg itself. I feel like this is way harder than it needs to be. Does anyone have any pointers, tips, examples, or know of any examples that I could use to make this easier? I, myself, was amazed that we do not have a document within the documents vendor but they are insisting they do not and we need to generate these notices from scratch. I feel like I am drowning in Reg Z. Any help or advice would be greatly appreciated.

Have you sat down with your legal counsel. The modification requirements on your current contracts are going to be specific to the individual contracts that you are currently using. It is most likely not just going to be one document that fits all. Each one of your current loan contracts will have to be analyzed.

RLCarey - they are part of the group that asked me to compile all of the Reg Z requirements for Change in Terms. The idea was for me to gather all the requirements and pass it along to (likely legal) and have them draft the document and then sent back for me to review the final. I am just thinking this approach may not be the most effective but am struggling to find a more efficient/effective way to handle this.

Unless you are doing more than a substitution of the new index, it would not be a refinancing under 1026.20(a). SO if that is the case, I am not sure what your Regulation Z concerns might be?

1026.20(a) - Comment 3. Variable-rate. i. If a variable-rate feature was properly disclosed under the regulation, a rate change in accord with those disclosures is not a refinancing. For example, no new disclosures are required when the variable-rate feature is invoked on a renewable balloon-payment mortgage that was previously disclosed as a variable-rate transaction.

ii. Even if it is not accomplished by the cancellation of the old obligation and substitution of a new one, a new transaction subject to new disclosures results if the creditor either:

A. Increases the rate based on a variable-rate feature that was not previously disclosed; or

B. Adds a variable-rate feature to the obligation. A creditor does not add a variable-rate feature by changing the index of a variable-rate transaction to a comparable index, whether the change replaces the existing index or substitutes an index for one that no longer exists.

Thank you RLCarey!

So is my understanding correct?

I do not need to worry about all of the crazy provisions in Reg Z regarding the change in terms notices because we are just substituting the index. Therefore, we just need to have legal worry about what would be needed according to each contract?

If so, you are a lifesaver and I owe you the world! If not, well I'll be sad but figure it out!

Thanks!

For closed end loans and all you are doing is substituting index, that is correct. . If you have opened loans tied to LIBOR then you would have to follow 1026.9 requirements.

Am I interpreting this correctly regarding closed end loans?
Our note includes language regarding a replacement index so we only need to notify the borrower of this change per the terms in our note - no other disclosures needed at time of change.
The note does NOT include language regarding a replacement margin so if we want to increase the margin we need to modify the loan and the borrower would need to agree to this change in terms. This would be done via an amendment to the note.
The requirements covered in 1026.20(c) would come into play at the next Change Date when the actual rate and payment amount could change.