We believe that you may modify the HELOCS in the way that you described before or after maturity without treating the changes as a “refinancing.” However, the language that you use in the loan modification documents will determine whether you achieve this result.

The Seventh Circuit has considered a similar issue, albeit in the context of a lump sum payday loan. The court found that the loan did not “expire” when it matured and held that it was permissible to renew the loan after the maturity date without triggering Regulation Z’s refinancing requirements. Similarly, we believe that it is permissible to modify a home equity line of credit after it has matured without treating it as a refinancing.

The general rule is that a refinancing occurs only when an existing obligation is “satisfied and replaced” by a new transaction, based on the parties' contract and applicable law. If a modification does not satisfy and replace the existing loan, then you are not required to treat it as a refinancing.

For example, in one Illinois case, the court found that “[c]hanges in the terms of an existing loan obligation, such as the deferral of individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation.” In that case, the modification agreement stated that it would “amend and supplement” the original note and mortgage. The modification also had an express disclaimer stating that “nothing in this Agreement shall be understood or construed to be a satisfaction or release in whole or in part of the obligations contained in the Loan Documents.” Based on those provisions in the agreement, the court found that the transaction was not a refinancing.

Similarly, in this case, we believe it is possible to extend the term of HELOC and add an amortization schedule without treating the changes as a refinance, provided that your modification documents clearly state that the modification does not satisfy and replace the existing obligation.

For resources related to our guidance, please see:

• Jackson v. American Loan Co., Inc., 202 F.3d 911, 913 (7th Cir. 2000) (“American Loan does not ‘cancel’ the old loan and note, or substitute a new one, when it agrees to defer repayment until another payday, and thus it does not ‘refinance’ the loan. . . . To say, as plaintiffs do, that a loan ‘expires by its terms’ on the original due date is fanciful. All of the loan’s terms, including the repayment obligation, persist.”)

• Regulation Z, 12 CFR 1026.20(a) (A “refinancing” occurs when “an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer.”)

• Official Interpretations, 12 CFR 1026, Paragraph 20(a), Comment 1 (“A refinancing is a new transaction requiring a complete new set of disclosures. Whether a refinancing has occurred is determined by reference to whether the original obligation has been satisfied or extinguished and replaced by a new obligation, based on the parties’ contract and applicable law. . . .”)

• Rodriguez v. Chase Home Finance, LLC, No. 10 C 05876 (N.D. Ill. Sept. 23, 2011) (“Changes in the terms of an existing loan obligation, such as the deferral of individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation . . . Here, Rodriguez’s Modification Agreement states that it ‘will amend and supplement (1) the Mortgage on the Property and (2) the Note secured by the Mortgage. . . .’ In short, because the Modification Agreement merely modifies the previous loan rather than cancelling the loan and creating a new obligation, Rodriguez's modification does not constitute a ‘refinancing.’”)