IBA Compliance Connection

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Am I correct that if a mortgage loan obligation is being satisfied and replaced, BUT falls into one of the following five categories, it is not a refinance and would not require new disclosures under Regulation Z? The five categories are: (1) A renewal of an obligation with a single payment of principal and interest or with periodic interest payments and a final payment of principal with no change in the original terms, (2) an APR reduction with a corresponding change in the payment schedule, (3) an agreement involving a court proceeding, (4) changes in credit terms arising from the consumer’s default or delinquency (except rate increases or new amounts financed), and (5) the renewal of optional insurance purchased by the consumer and added to an existing transaction, if required disclosures were provided for the initial purchase of the insurance.

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Yes, your understanding is correct. The five transaction categories that you provided are all exceptions from the general definition of a refinancing. The general rule in Regulation Z is that a new obligation satisfying and replacing the original obligation is a refinancing requiring new disclosures. But if a transaction fits into one of the five exception categories, it is not treated as a refinancing and does not require new disclosures, even if the new obligation satisfies and replaces the original obligation.

For resources related to our guidance, please see:

  • Regulation Z, Official Interpretations, 12 CFR 1026, Section 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. . . .”)

  • Regulation Z, Official Interpretations, 12 CFR 1026, Section 20(a), Comment 2 (“A transaction is subject to § 1026.20(a) only if it meets the general definition of a refinancing. Section 1026.20(a)(1) through (5) lists 5 events that are not treated as refinancings, even if they are accomplished by cancellation of the old obligation and substitution of a new one.”)