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Closed End Line of Credit Renewed Into Amortized

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Question: 
We have a customer that has a closed end line of credit and it is being renewed into an amortized loan. Is this considered a renewal or a refinance? It is secured by residential property so we are trying to decide if it is HMDA reportable.
Answer: 

If the new (amortized) loan satisfies/replaces/extinguishes the old loan, then it is a refinance. If the old loan stays in place and is simply modified (not satisfied), then it's not a refinance. HMDA coverage will depend on whether the first loan was reported or if it was temporary knowing this amortized loan was going to happen.

Ask yourself this: "If we go to court, does the new loan stand on its own legally?" If so, then it satisfied the old loan. If you need the old and new loan documents to fully understand the legal agreement, then you don't have a refinancing.

First published on 08/25/2014

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