Are workout agreements/loans exempt from the ATR rule?

I would say yes unless it falls within the definition of a refinancing.

1026.20 Paragraph 20(a)(4)

1. Workout agreements. A workout agreement is not a refinancing unless the annual percentage rate is increased or additional credit is advanced beyond amounts already accrued plus insurance premiums.

Is there anything in 1026.43 that addresses workouts? I didn't see anything, but that doesn't mean it's not there. I'm having a terrible time understanding what may or may not be considered a workout. I have some questions and I would love some answers.

1) Is there any place that workout agreements are defined in a regulation or guidance?
2) Am I correct that workouts can be handled as a modification or with a new loan?
3) If they are handled as a new loan and the new loan meets the definition of refinance, then do all Reg Z requirements have to be followed?
4) If they do not meet the definition of refinance, then we don't have to follow Reg Z?

Workout agreements are subsequent events and 1026.20 is the reference for subsequent events. 1026.20(a)(4) excludes workouts from being refinancing provided the rate is not increased and new money is not advanced.

1. I'm not aware of any workout definition in Reg Z.

2. I would agree but I would also advise your attorney bless any legal agreement.

3. If the new legal agreement meets the definition of a refinance then all new disclosures would apply. This is why you need to make sure your workout agreement does not cross over to a refinancing.

4. Correct. You are simply modifying the original terms.

1) Not really - but it would be a change in the loan terms because the borrower can't meet the current obligation - think TDR
2) Yes
3) A new loan meets the definition of a refinancing automatically as it replaced the existing obligation. But even if the new loan replaces the existing obligation, a workout transaction will only be covered if the conditions of the new loan include an increase in the rate, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance.
4) If a transaction is considered a refinance, then all of Reg. Z and RESPA will apply to the transaction, just like any other refinance transaction.

Thank you, both. This is very helpful. Now I have to go find someone to yell at a whoever did this!!