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#727833 - 05/07/07 08:20 PM Loan Modification vs Refinance
Durango Offline
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Joined: Apr 2007
Posts: 41
According to our internal auditor, we can use Change in Terms Agreement (or Modification Agreement) only if we make minor changes to a consumer loan (e.g. extend the term by 2 months). If we are changing the rate from variable to an ARM, extend the matirity by 1 year, term out a balloon, etc., we need to re-disclose and that means to refi.
Any thoughts on that?

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Lending Compliance
#727919 - 05/07/07 11:57 PM Re: Loan Modification vs Refinance [Re: Durango]
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 9,556
Toano, VA
If you're debating an internal auditor, the "rule" in question may be an internal policy. Section 226.20(a) governs what is and is not a "refinance" requiring new disclosures. It allows huge changes without redisclosure. You must handle the event as a refinance only if you cancel the original note and replace it with a new note OR add a variable rate feature to an existing note.
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#728315 - 05/08/07 05:37 PM Re: Loan Modification vs Refinance [Re: Richard Insley]
RR Joker Offline
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The Swamp
Durango, just from a "spirit and intent" point of view...I prefer we redisclose if we make major changes to original deals...it's a judgement call/internal procedures issue in many ways...be sure to read the commentary to .20(a) that Richard cited.

In regard to you example of terming out a balloon...consider this...you original note has matured. Not to replace that note, but simply modify it, to me...may cause you to lose some protections covered in that note...I may be wrong...but it just doesn't seem appropriate to modify in a situation like that.

Same with the example of variable to ARM. Was the first one unsecured and now you intend to secure it with a home, thus an ARM? To me you have risk there in choosing to modify vs refi.
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#728481 - 05/08/07 08:03 PM Re: Loan Modification vs Refinance [Re: RR Joker]
Durango Offline
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Joined: Apr 2007
Posts: 41
Thank you for your help. I think we will just create internal procedures for using modifications vs refis in different situations.
Does anyone have experience with using Change in Terms Agreement by LaserPro? I am confused on the dates and terms. Do I leave them the same for the modification and just add the modification description, or I need to change the whole form to reflect all the changes in the body?

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#732323 - 05/15/07 04:29 PM Re: Loan Modification vs Refinance [Re: Durango]
Jason Spelliscy Offline
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Joined: Mar 2005
Posts: 27
Can an increase in the amount of the loan/line be accomplished via a modification too thus not requiring a right of rescission? The transaction does not meet the definition of refinance, which would require. However, my gut is telling me that the increase should be rescindable?
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#732359 - 05/15/07 04:44 PM Re: Loan Modification vs Refinance [Re: Jason Spelliscy]
Dan Persfull Online
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Dan Persfull
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Posts: 45,547
Bloomington, IN
You can avoid the TIL disclosures with a modification but you cannot avoid the ROR.

Anytime a new security interest is being taken, or an increase in the security interest in the consumer's primary residence, the ROR will apply.
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#732554 - 05/15/07 06:51 PM Re: Loan Modification vs Refinance [Re: Dan Persfull]
Jason Spelliscy Offline
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Joined: Mar 2005
Posts: 27
Thanks Dan, that is what I thought. Where does it state the obvious?
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#732572 - 05/15/07 07:02 PM Re: Loan Modification vs Refinance [Re: Jason Spelliscy]
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,463
Central City, NE
No TIL disclosure = 226.20(a)
Still need RofR = Commentary to 226.23(a)(1)#5
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