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#82690 - 05/27/03 02:03 PM Renewal vs. Refinance
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
I know this is a remedial question but would someone please help explain the difference between a “renewal” and a “refinance”?

A refinance is when the current debt is satisfied and replaced with a new debt. (The simple definition)

To me a renewal is renewing the note on the same terms of the original note. (An exception would be in the case of a commercial loan over a 5 year period with an agreement that the notes are renewed yearly at the current interest rates.)

My question is if you are “renewing” the loan, but you are “renewing” under new terms (rate, repayment schedule, etc. without a previous loan agreement to renew the note) how can that be a renewal and not a refinance?

For instance a balloon mortgage payment comes due, and you "renew" the balloon, unless there is an expressed agreement in the note and/or mortgage how does that qualify as a renewal vs a refinance?
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#82691 - 05/27/03 02:16 PM Re: Renewal vs. Refinance
Andy_Z Offline
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I think there is very little difference between a renewal and refi and in some cases they may be the same. I don't know that there are official definitions and each of us may have our own, slightly varying from one another's.

On balloon renewals, we replaced the notes and it was a new disclosable loan. If there was a commitment to renew, it was a variable rate note.

I have always leaned toward redisclosure, especially if we were doing the notes in-house. The system could easily generate them and it is cleaner, in my opinion.
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#82692 - 05/27/03 02:27 PM Re: Renewal vs. Refinance
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Quote:

If there was a commitment to renew, it was a variable rate note.




My thoughts exactly and that ARM/variable disclosures should have been given, but (rhetorical question) how many lenders "renew" these notes without the proper disclosures (both for the original note as an ARM and the new note as a refi) because they consider it a renewal and not a refinance?

Quote:

I have always leaned toward redisclosure, especially if we were doing the notes in-house. The system could easily generate them and it is cleaner, in my opinion.




On point again!
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#82693 - 05/27/03 02:42 PM Re: Renewal vs. Refinance
E.E.G.B Offline
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E.E.G.B
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the sandy shore
You may want to check state law too. We discovered that it ties back to state statutes and how credit obligations are defined under those rules.

When in doubt, it's safer to re-disclose, I think.
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#82694 - 05/27/03 10:12 PM Re: Renewal vs. Refinance
Queen Mum Offline
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Queen Mum
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OK
I think this is an ongoing problem a lot of places. When I first came here, everything was a renewal so they wouldn't have to re-disclose. Problem with that was they paid off one note and issued a new one. I am finally getting them to realize if you pay off one note with another that is a new obligation even though they just renewed the principal. It makes it easier to know to re-disclose if you have a new note number.

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#82695 - 05/28/03 02:36 PM Re: Renewal vs. Refinance
CSpellman Offline
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I always use the word renewal as a verb, while a refinance is a noun. Example: Loan Officer: I need to renew a loan. ME: How do you plan to do it? Extension/modification agreement, new note?
There are many ways to renew a loan, however there is only one way to refinance, IMO, a new note.
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#82696 - 05/28/03 05:54 PM Re: Renewal vs. Refinance
captain morgan Offline
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Land of "uffda"
We had the Fed here recently and had the same question brought up. The loan in question, the existing note was satisfied, the mortgage and ballon remained the same. The examiner stated this should be a renewal etc. The lender comments even stated it was a renewal with a new note. The compliance officer(me) stated it was a refi due to the note being satisfied and replaced. We do not always want to redo the mortgage due to costs and we may lose our position on the mortgage. After talking/convincing the examiners supervisor they agreed it should be consider a refi. Subject to HMDA

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#82697 - 05/29/03 01:54 AM Re: Renewal vs. Refinance
c.a.r Offline
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c.a.r
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Texas, USA
I just don't understand why most loan officers don't want to disclose.. they act like it is a dirty word. It is soooo easy these days to just click and print.. sign and THANK YOU I am new at this but some people seem to want to take the back road that is way out of the way. How do we help make it a simple process for them.
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#82698 - 05/29/03 02:25 PM Re: Renewal vs. Refinance
Lestie G Offline

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Near the Land of Enchantment
The closing disclosures are easy - it's the early ones they get agitated about.
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#82699 - 05/29/03 05:49 PM Re: Renewal vs. Refinance
KSalberta Offline
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GA
Well, for overall compliance reasons, this timid person would think it better to just redisclose as a standard practice when renewing or paying off but this is from the OCC handbook:

When an obligation is satisfied and replaced by a new obligation to the original financial institution (or a holder or servicer of the original obligation) and is undertaken by the same consumer, it must be treated as a refinancing for which a complete set of new disclosures must be furnished. (some text cut) In any form, the new obligation must completely replace the earlier one to be considered a refinancing under the regulation. The finance charge on the new disclosure must include any unearned portion of the old finance charge that is not credited to the existing obligation.
(226.20(a))
The following transactions are not considered refinancings even if the existing obligation is satisfied and replaced by a new obligation undertaken by the same consumer:
• A renewal of an obligation with a single payment of principal and interest or with periodic interest payments and a final payment of principal with no change in the original terms.
• An APR reduction with a corresponding change in the payment schedule.
• An agreement involving a court proceeding.
• Changes in credit terms arising from the consumer’s default or delinquency.
• The renewal of optional insurance purchased by the consumer and added to an existing transaction, if required disclosures were provided for the initial purchase of the insurance.
However, 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 bank:
• Increases the rate based on a variable rate feature that was not previously disclosed; or
• Adds a variable rate feature to the obligation.

If, at the time a loan is renewed, the rate is increased, the increase is not considered a variable rate feature. It is the cost of renewal, similar to a flat fee, as long as the new rate remains fixed during the remaining life of the loan.
If the original debt is not canceled in connection with such a renewal, the regulation does not require new disclosures. Also, changing the index of a variable rate transaction to a comparable index is not considered adding a
variable rate feature to the obligation.

So there are some rules! Page 31. OCC TIL handbook: http://www.occ.treas.gov/handbook/til.pdf

Kathy

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#82700 - 05/29/03 11:45 PM Re: Renewal vs. Refinance
Anonymous
Unregistered

I'm having a similar discussion with my compliance officer. In our case, we had a note which I believed was renewed for another 5 years - principal, deed of trust, terms all remained the same as the original note. The attorney prepared all new documentation but the loan department processed it as a renewal rather than a refi on the loan system, ie same loan number was used. The HUD settlement statement listed the existing obligation as being paid in full with new money being disbursed for the new mortgage (this didn't happen - no funds were transferred between the Bank and the settlement attorney). Our compliance officer is arguing that 1) we should have used a new note number, 2) it should be listed on the LAR and 3) we should get CRA credit for it. I don't necessarily agree with everything she says. l

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#82701 - 05/30/03 12:23 AM Re: Renewal vs. Refinance
HRH Dawnie Offline
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HRH Dawnie
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Anchorage Alaska
I'll give you 2 out of 3 and question the 3rd issue I go with the "new note, new loan" theory and whould have wanted to see a new note number. This of course then make the loan eligible for the HMDA LAR.

Umm CRA credit for it? I hate phrases like that First of all, it's a HMDA deal? So ya, it rolls up to the CRA exam I suppose, but it's not a CRA deal to get "credit for" as in credit on the CRA LR (unless it's not a HMDA deal) and..big issue here. WE DO NOT REPORT TO GET "CREDIT" We report the deals we do because they're appropriate to be reported. The deal getting "credit" through CRA is not a deciding factor in reporting.

An examiner would bite the nose off of a compliance person who went the extra mile to report a loan in a low income area for the "CRA Credit" but not the loan in a middle income area. We're not suposed to be thinking CRA as a factor in reporting decisions.
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#82702 - 05/30/03 02:05 AM Re: Renewal vs. Refinance
Princess Romeo Offline

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IMHO - a "loan" number is an internal reference device that is entirely separate from the actual legal obligation. If you sign a new note, you have a refinance regardless of what the heck number you place at the top.
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#82703 - 05/30/03 01:53 PM Re: Renewal vs. Refinance
hmdagal Offline
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hmdagal
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I agree with Bonnie on the loan number - I don't think it should be used as a determining factor for deciding whether or not to report. We have a division in our bank that almost never issues a new note number - they advance new funds under existing numbers. Other departments only reuse the number if there is no new money or new mortgage taken.

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#82704 - 06/02/03 06:35 PM Re: Renewal vs. Refinance
SouthoftheBorder Offline
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Posts: 335
The South
I think I might be the compliance officer of which ANONYMOUS speaks...except for #3....I didn't say that part......and I still say.....needs a new loan number

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#82705 - 06/02/03 11:56 PM Re: Renewal vs. Refinance
Anonymous
Unregistered

I think it's a fairly common problem JanDan. I had this same discussion with my loan manager. As I told him, it's very difficult to discern between a refi and a renewal and if we are going to treat it like a refi, I would like the Bank to get the credit for it. At the same time, I do agree with you, that it needs to be listed on the LAR as well.

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