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Extending Term for ARM Loan: New TRID Disclosures?

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Question: 
We have a consumer real estate ARM loan that was originally set as a 5 year ARM with a 10 year term. The loan was booked. Two months into the loan the borrower wants to make the term of his loan to 15 years instead of 10. We did not change the rate and the payments went down because the term was extended. We made the changes on a change in terms/modification document. Is this a change that should have required new TRID disclosures, or is this considered a subsequent change an no new disclosures are required?
Answer: 

It all hinges on whether or not this is a refinance under 1026.20(a).

One of the triggers to being classified as a refinance is: Adds a "variable-rate feature" to the obligation. A creditor does not add a variable-rate feature by changing the index of a variable-rate transaction to a comparable index, whether the change replaces the existing index or substitutes an index for one that no longer exists.

The question is, what is a "variable-rate feature"? That is not defined in 1026.20(a). However, if you refer to 1026.19(b), it does define the features that would deem an ARM a separate program. See .19(b)(2) - Comment 2:

2. Variable-rate loan program defined. i. Generally, if the identification, the presence or absence, or the exact value of a loan feature must be disclosed under this section, variable-rate loans that differ as to such features constitute separate loan programs. For example, separate loan programs would exist based on differences in any of the following loan features:

A. The index or other formula used to calculate interest rate adjustments.

B. The rules relating to changes in the index value, interest rate, payments, and loan balance.

C. The presence or absence of, and the amount of, rate or payment caps.

D. The presence of a demand feature.

E. The possibility of negative amortization.

F. The possibility of interest rate carryover.

G. The frequency of interest rate and payment adjustments.

H. The presence of a discount feature.

I. In addition, if a loan feature must be taken into account in preparing the disclosures required by §1026.19(b)(2)(viii), variable-rate loans that differ as to that feature constitute separate programs under §1026.19(b)(2).

Since a 10 year term versus a 15 year term impacts the required disclosures under .19(b)(2)(viii), then it would appear to be a new variable rate feature not previously disclosed under Comment 2(I).

First published on 12/30/2018

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