Does a request for a modification of an existing loan constitute an “application” under Regulation B, triggering the requirement to send an appraisal notice within three business days? Typically, our modifications involve extending the maturity date or lowering interest rate.

The answer depends on the specific type of modification and how the request is made. Regulation B’s appraisal notice requirements apply whenever you receive an application for an extension of credit secured by a first lien on a dwelling. Therefore, you must determine whether each modification request involves an “application” for an “extension of credit.”

An “application” is a written or oral request for an “extension of credit” made in accordance with your bank’s procedures. An “extension of credit” is defined to include credit added to existing credit, refinancings or renewals, loan consolidations and the continuance of existing credit without any special effort to collect at or after maturity. For example, a loan modification might involve an “extension of credit” within the meaning of Regulation B if it extends the right to defer payment of a debt by reducing the interest rate or extending the loan term. An application for such a modification would be subject to Regulation B’s appraisal notice and other requirements.

For resources related to our guidance, please see:

Regulation B, 12 CFR 1002.14(a)(1) (“A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling.”)

Regulation B, 12 CFR 1002.14(a)(2) (“For applications subject to paragraph (a)(1) of this section, a creditor shall mail or deliver to an applicant, not later than the third business day after the creditor receives an application for credit that is to be secured by a first lien on a dwelling, a notice in writing of the applicant’s right to receive a copy of all written appraisals developed in connection with the application. . . .”)

Equal Credit Opportunity Act (ECOA) Valuations Rule, Small Entity Compliance Guide, pg. 10 (“Loss-mitigation transactions, such as loan modifications, short sales, and deed-in-lieu transactions, are subject to 1002.14(a)(1) if they are credit transactions covered by Regulation B.”)

Regulation B, 12 CFR 1002.2(f) (“Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested.”)

Regulation B, 12 CFR 1002.2(q) (“[E]xtension of credit means the granting of credit in any form (including, but not limited to, credit granted in addition to any existing credit or credit limit; credit granted pursuant to an open-end credit plan; the refinancing or other renewal of credit, including the issuance of a new credit card in place of an expiring credit card or in substitution for an existing credit card; the consolidation of two or more obligations; or the continuance of existing credit without any special effort to collect at or after maturity).”)

Federal Reserve Board, Consumer Affairs Letter CA 09-13, Mortgage Loan Modification and Regulation B’s Adverse Action Requirement (Dec. 4, 2009) (“Under Regulation B, ‘credit’ includes ‘the right granted by a creditor to an applicant to defer payment of a debt.’ An ‘extension of credit’ is defined as ‘the granting of credit in any form (including, but not limited to, credit granted in addition to any existing credit . . . [,] the refinancing or other renewal of credit . . . or the continuance of existing credit without any special effort to collect at or after maturity).’ For example, we understand that under a HAMP trial period plan or modification, the servicer extends the right to defer payment of a debt by capitalizing accrued interest and certain escrow advances, reducing the interest rate, extending the loan term, and/or providing for principal forbearance. Based on this understanding, the action(s) taken by a servicer under a HAMP trial period plan or modification would constitute an ‘extension of credit’ for purposes of the HAMP.”)