Skip to content
BOL Conferences
Thread Options
#834981 - 10/15/07 09:25 PM Conditional Right to Refinance
Kevin Offline
New Poster
Joined: Aug 2007
Posts: 23
I was reading the Official Staff Interpretations for Reg Z and found some interpretation on balloon payment loans that have conditional rights to refinance. If we have a 10 year balloon loan that has a conditional right to refinance, that we set maximum and minimum rates and state the index used, are we technically creating an adjustable rate loan subject to ARM disclosure requirements? We do have conditions that are under the consumers control - current on payments, current owner of the property, etc.

For example, if the customer meets the conditions at the end of the 10 years, we will allow the customer to refinance using the index/margin provided in the original note.

Any takers on this one?

Return to Top
Lending Compliance
#1009465 - 07/31/08 10:22 PM Re: Conditional Right to Refinance Kevin
boedingan Offline
New Poster
Joined: Dec 2007
Posts: 3
Did you ever get an answer to this post. Where would I go to view this staff commentary. I need to settle an argument here at my bank.

Thanks,
Adam

Return to Top
#1009486 - 07/31/08 11:42 PM Re: Conditional Right to Refinance boedingan
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,225
Galveston, TX
It is not an adjustable rate loan. The refinance is a separate transaction and a subsequent event.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1009555 - 08/01/08 01:35 AM Re: Conditional Right to Refinance rlcarey
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,748
On the Net
I won't dispute Randy's answer, but I do recall that balloons could have been confused with adjustable rate loans when there was an obligation on the bank's part to refi. That is why we used to have a special disclosure done that the bank was under no obligation.

Any other thoughts???
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#1009644 - 08/01/08 11:46 AM Re: Conditional Right to Refinance Andy_Z
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,225
Galveston, TX
Well, maybe Richard will chime in, but I did key on the statement of "we will allow the customer to refinance".

Comparing that it the commentary of "Disclosures also must be based on the term of the balloon-payment loan in balloon-payment instruments in which the legal obligation provides that the loan will be renewed by a “refinancing” of the obligation, as that term is defined by §226.20(a)."

IMHO, if it provides for a refinancing rather than renewal, the disclosures are based on the original term and there is no variable rate in the original term.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1009745 - 08/01/08 01:40 PM Re: Conditional Right to Refinance rlcarey
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
Quote:
we will allow the customer to refinance using the index/margin provided in the original note.


IMO the key is if they are contractually liable to renew the note and whether they renew or refinance it.

If they are and renew the original obligation then I would opine they are in the world of a ARM. If they refinance the original obligation (satisfying and replacing the original one) then I would opine they are not. Also under a refinancing all new disclosures are required.

Again I think they have to look at their legal obligation. Allowing and being "required to" are two different things.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top

Moderator:  Andy_Z