Renewal Versus Refinance

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Question:

We seem to be faltering back and forth with regard to renewal versus refinance. We have three year mortgages that are renewed at the end of the three years. With a renewal, an application is not required. We do take a new note with a new number, but we do refer to the previous note number that the loan is renewing. Should we be using the same note number and are the RESPA disclosures required? Also the changes on Regulation Z effective as of 7/30/09 do not reflect renewals, but refinances they do. What are your thoughts on renewal versus refinances?

Answer:

You need to study 12 CFR 226.20 carefully to see if these renewals qualify as a refinancing, which (if the loan is a consumer purpose loan)would trigger TIL and RESPA coverage. There are specific things that will trigger disclosure, such as the addition of a variable rate feature at the time of renewal. You also need to check with your attorney to determine if the new loan extinguishes the original obligation and establishes a new obligation under State law regardless of the paper work that you use to support the renewal.

First published on BankersOnline.com 10/05/09