HMDA - Refi or renewal

Still pretty new to working with HMDA. I thought I was clear on diff betweeen refi and renewal. However, we have one bank that does replace the original obligation with a new obligation, but they keep the same loan number. There a no changes in the original deed of trust. How would you seasoned HMDAer's classify this loan?

If a new mortgage or deed of trust is taken, we consider it a refi. If only a new note, or a modification to an existing note, it is a renewal, and not reportable.

HMDA "Getting it Right" defines a refinancing as a transaction involving the satisfaction of an existing obligation that is replaced by a new obligation undertaken by the same borrower. The promissory note is the document that "obligates" a consumer to pay a debt. Thus, if there is a new promissory note, there is a new obligation and it's reportable....even if you simply extend the existing deed of trust (to hold your lien position). A note number is simply an internal number that a bank uses to identify loans and is irrelevant to the regulation.

I agree with you Shirley. In my opinion this would be a refi and should be reported on the HMDA LAR.

Shirley is correct. If you replace one note with another, it is reportable and considered a new transaction.

(That's my opinion, not the opinion of my financial institution or anyone).

DITTO! I would also agree. Your best source of info on HMDA is the booklet, Getting it Right. It has not been re-published since April '98 however, it is an excellent resource. Refer to the Appendix A-D. Hope this helps.

I'm standing by our procedure. See Section 2 in Appendix D in "Getting it Right":

"If the existing obligation is not satisfied and replaced, but is only renewed, modified, extended or consolidated (as in certain modification, extension and consolidation agreements), the transaction is not a refinancing for the purposes of HMDA."

But a new note is a brand-new "promise to pay"....a brand new set of terms. You may be denying your bank reportable loans. Here in Texas, we often refinance loans by filing a "Modification of Note and Lien" document at the courthouse.....no new promissory note. We are forced to do this in order to maintain the policy of title insurance. Even though this method achieves the exact same result as utilizing a new promissory note, we are prevented from including these on our LAR because they are true modifications.....what I call the Texas HMDA loophole. But if there is no title insurance (say, for small home improvement loans or certain other refi's), we utilize a new promissory note and report the loans on our LAR.

I still maintain that a new promissory note IS a new obligation......is NOT an extension, modification or consolidation. It's a refinance and it's reportable. But please note my disclaimer at the bottom of this post!!

HMDA Reporting GIR Appendix D #2 page D-1

2. Meaning of refinancing. A refinancing of a loan is the satisfaction and replacement of an existing obligation by a new obligation (your state, “we have one bank that does replace the original obligation with a new obligation,”) by the same borrower. The term “refinancing” refers to the new obligation. If the existing obligation is not satisfied and replaced, but only renewed, modified, extended, or consolidated (as in certain modification, extension, and consolidation agreements), the transaction is not a refinancing for purposes of HMDA.

Appendix A – Code 3: Refinancings. Page A-8

a. Use this code for refinancings (and applications for refinancings) of loans secured by one-to-four family residential dwellings. A refinancing involves the satisfaction of an existing obligation that is replaced by a new obligation undertaken by the same borrower. But do not report a refinancing if, under the loan agreement, you are unconditionally obligated to refinance the obligation, or you are obligated to refinance the obligation subject to conditions within the borrower’s control.

I assume no new money is advanced.

Unless your loan agreement obligates you to renew, or calls for periodic renewals of, the note at maturity, then I have to agree with the others that you have a refinancing.

1. Did you renew the note at maturity because the borrower could not pay the note, or did you renew due conditions of your loan agreement? If the borrower could not repay, then you satisfied the existing debt with a new debt (your new note), thus a refinancing.

My bank never utilizes any formal written agreements to renew. Renewal may be an assumption on the borrower's part, but there's nothing in writing which would force the bank to refinance the loan. When the customer needs to refinance the balloon payment (say after 5 years), we go through the application process as though from scratch.

We would never add new money to a home purchase or home improvement loan (for homestead property). In Texas, you would end up with a crummy home equity lien which can only be foreclosed upon by court order from a judge. Purchase money liens and assigned contractor liens are preferred.