Page 10 - 630578_IBAT-Jan-Feb2018

Loan Modification?

Modification Shmodification!

KELLY GOULART, CRCM, CAMS, CIA

OT A MONTH—OR EVEN A WEEK!—GOES BY that I don’t get questions about loan modifica -
tions. Most of those questions deal with subsequent disclosure requirements for mortgage loans.
NCommunity bankers are often worried about TRID and other subsequent disclosures relating
to loan modifications, so I thought it worthy of review.

The definitive question is: What qualifies as security agreement are not satisfied and re-
a modification and what crosses the line into a placed? If the modification either increases the
refinance? A loan modification is a permanent interest rate based upon a variable-rate feature
restructuring of the mortgage where not previously disclosed, or adds a variable-rate
The key is that the one or more of the terms of a borrow- feature, that will always be treated as a refi-
existing note and er’s loan are changed, often to provide nance and require new disclosures. The follow-
security agreement a more affordable payment or extend ing is from a supplement to §1026.20:
are not satisfied and the maturity. The key is that the ex- 3. Variable-Rate.
isting note and security agreement are
replaced—they are only not satisfied and replaced—they are i. If a variable-rate feature was properly dis-
modified. And there are only modified. And there are certain sit- closed under the regulation, a rate change
in accord with those disclosures is not a re-
certain situations that uations that don’t meet the definition financing. For example, no new disclosures
of a refinancing even if the note is satisfied
don’t meet the definition and replaced. Here is the wording in the are required when the variable-rate feature
of a refinancing even if Truth in Lending Act (Regulation Z): is invoked on a renewable balloon-payment
mortgage that was previously disclosed as a
the note is satisfied §1026.20: Disclosure requirements variable-rate transaction.
and replaced. regarding post-consummation events ii. Even if it is not accomplished by the cancella-
a. Refinancings. The following shall tion of the old obligation and substitution of
not be treated as a refinancing: a new one, a new transaction subject to new
1. A renewal of a single payment obligation disclosures results if the creditor either:
with no change in the original terms. A. Increases the rate based on a variable-rate
2. A reduction in the annual percentage rate feature that was not previously disclosed;
with a corresponding change in the payment or
schedule. B. Adds a variable-rate feature to the ob-
3. An agreement involving a court proceeding. ligation. A creditor does not add a vari-
4. A change in the payment schedule or a able-rate feature by changing the index
change in collateral requirements as a re- of a variable-rate transaction to a compa-
sult of the consumer’s default or delinquen- rable index, whether the change replaces
cy, unless the rate is increased or the new the existing index or substitutes an index
amount financed exceeds the unpaid bal- for one that no longer exists.
ance plus earned finance charge and pre- iii. If either of the events in paragraph 20(a)-
miums for continuation of insurance of the 3.ii.A or ii.B occurs in a transaction secured
types described in §1026.4(d). by a principal dwelling with a term longer
5. The renewal of optional insurance pur- than one year, the disclosures required under
chased by the consumer and added to an §1026.19(b) also must be given at that time.
existing transaction, if disclosures relating
to the initial purchase were provided as re- Now let’s talk about subsequent disclosures.
quired by this subpart. Modifications are not subject to the Truth in
So, what crosses the line between a modifi- Lending Act (Regulation Z)—any part of it. That
cation and a refinance if the existing note and means no TRID disclosures, no Ability to Re-

10 | THE TEXAS INDEPENDENT BANKER