help with loan modifications

Posted By: pjs

help with loan modifications - 10/21/21 05:12 PM

Hello- can a bank do a loan modification on adjustable rate loan(5/1) to a fixed rate loan and extend the maturity rate to 10 years? The borrower is not late on payments. This is a 5/1 ARM- and the ARM would change first in 2023. Or would it be a refinance and why?

Thank you.
Posted By: rlcarey

Re: help with loan modifications - 10/21/21 05:46 PM

It does not sound like a refinance under 1026.20(a), but that is fact specific and I am not sure we have them all. But that is where you need to look.
Posted By: pjs

Re: help with loan modifications - 10/21/21 06:01 PM

fact specific? I don't know what you mean by that. Thanks much.
Posted By: rlcarey

Re: help with loan modifications - 10/21/21 06:08 PM

What I meant is: Does the legal documentation that you are going use make it a refinancing under 1026.20(a) or not. You can say "modification" and I can say "modification", but what that means under State law may be totally different. There may also be other consideration that you failed to mention within your two sentence question that would have an impact on 1026.20(a).

This was not a yes or no question.
Posted By: pjs

Re: help with loan modifications - 10/21/21 06:26 PM

ok - I understand that- I had the maturity date wrong it actually was a 30 yr note going to a 20 yr note.
All that is changing is the ARM to fix rate- lower rate and the maturity date shorten.
But do we have to consider the APR to consider refinance or modification.

I appreciate your help. Thanks
Posted By: rlcarey

Re: help with loan modifications - 10/21/21 07:22 PM

Did you look at 1026.20(a)?

Paragraph 20(a)(2)
1. Annual percentage rate reduction. A reduction in the annual percentage rate with a corresponding change in the payment schedule is not a refinancing. If the annual percentage rate is subsequently increased (even though it remains below its original level) and the increase is effected in such a way that the old obligation is satisfied and replaced, new disclosures must then be made.

2. Corresponding change. A corresponding change in the payment schedule to implement a lower annual percentage rate would be a shortening of the maturity, or a reduction in the payment amount or the number of payments of an obligation. The exception in ยง1026.20(a)(2) does not apply if the maturity is lengthened, or if the payment amount or number of payments is increased beyond that remaining on the existing transaction.
Posted By: pjs

Re: help with loan modifications - 10/21/21 07:39 PM

No- so thank you so much. That helps!