As interest rates have dropped, many customers have asked for the interest rates on their loans to be lowered. For residential real estate loans, can we lower the interest rate and subsequent payment amounts with just a modification agreement rather than using new loan documents? We do not believe these modifications would be considered “refinancing” under the TRID Rule since we are not replacing the existing note with a new obligation or adding a variable rate feature. Also, are there any state laws that would prohibit us from only using a modification agreement and not providing new disclosures?

Yes, we believe you can lower the interest rate and subsequent payments for a loan with a modification agreement rather than using new loan documents. We are not aware of any state laws that would prohibit you from using a modification agreement or require you to provide new disclosures if the original loan agreement is not being satisfied or released or otherwise triggers the need for new disclosures under Regulation Z (such as by adding a variable rate feature to a loan).

You also may wish to review our answers to two recent compliance questions regarding this issue.

For resources related to our guidance, please see: