While there may be some arguments to the contrary, we believe the more prudent approach would be to treat the transaction as a refinancing requiring new disclosures, because the interest rate will be increased. Both the TILA and RESPA define “refinancing” as a transaction where an existing obligation is satisfied and replaced by a new obligation. While an extension of the loan term by itself likely would be considered a modification, and not a refinancing, we believe that increasing the interest rate more likely would be viewed as replacing the original note with a new note, which would be a new obligation. It is instructive that Regulation Z provides an exception to the definition of refinancing for “a reduction in the annual percentage rate with a corresponding change in the payment schedule,” but it does not provide a comparable exception for an increased annual percentage rate.  

For resources related to our guidance, please see below:

• RESPA — 12 CFR 1024.2 (defines “refinancing” as a transaction where an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower with the same or a new lender, and excludes a reduction in the annual percentage rate with a corresponding change in the payment schedule from the definition of refinancing)
• Regulation Z — 12 CFR 1026.20(a) (defines “refinancing” as a transaction where an existing obligation is satisfied and replaced by a new obligation undertaken by the same consumer and in subsection (a)(2) provides that a reduction in the annual percentage rate with a corresponding change in the payment schedule is not a refinancing)