Topic: Refinancing a Mortgage Loan
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If we increase the loan amount on a construction loan or closed-end mortgage loan, can we document it with only a change in terms agreement, or would we also need to record a modification of mortgage? We are also trying to determine when such a change would be considered a refinancing under Regulation Z.
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The answer to both questions is highly dependent on the exact wording of the mortgage and related loan documents. When increasing the loan amount of a construction loan or closed-end mortgage with a future advance, your bank should confirm (ideally, with the assistance of bank counsel) that the original mortgage or note allows such future…
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We are providing the payment deferral outlined in the CARES Act to all our loan customers, including loans held in portfolio and loans serviced for Fannie Mae. Some of our customers will soon be entering the repayment phase of the forbearance agreement. Would adding the accrued interest to the principal balance and re-amortizing the loan over the remaining term trigger flood insurance requirements as a M.I.R.E. event? Does it matter whether capitalizing the accrued interest would cause the loan balance to exceed the original principal balance? Also, would any other disclosure requirements be triggered — assuming the modification does not constitute a “refinancing” under Regulation Z?
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We believe that adding unpaid interest to the loan’s principal balance (i.e., capitalizing the interest) —regardless of whether this would cause the loan balance to exceed the original principal balance — would trigger the flood insurance requirements, unless your loan contract permits unpaid interest to be capitalized, or your forbearance agreement by its terms is…
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Does amending or extending the terms of a balloon note after maturity require a new note and new disclosures? Do the rules differ for different loan types?
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Generally, whether amending and extending a balloon loan (or other type of loan) after maturity requires a new note and new disclosures depends on whether you are modifying or refinancing the loan. For consumer balloon (and other) loans, Regulation Z requires new disclosures when an existing loan is “refinanced,” which Regulation Z treats as a…
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If we did not provide a right of rescission notice to a borrower in connection with a consumer mortgage loan in which the borrower received some cash back at closing, would a refinancing to pay off that cash portion extinguish the borrower’s right of rescission on the original loan?
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No, we do not believe that a refinancing of this loan would result in an expiration of the original rescission period (which would be three years if you failed to originally provide a right of rescission notice). Under Regulation Z, if “the required notice and material disclosures are not delivered,” the borrower’s right to rescind…
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For HMDA purposes, our understanding is that if a new debt obligation satisfies and replaces two or more existing obligations, the new obligation is a refinancing. However, must the new debt obligation be secured by the same property as the existing obligations?
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No, a new debt obligation is not required to be secured by the same property that secures the existing obligations it is satisfying and replacing to be considered a refinancing under Regulation C — provided that both the existing and new obligations are dwelling-secured. Under Regulation C, a “refinancing” means “a closed-end mortgage loan or…
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We extended a loan to a borrower who purchased a home with the intention of making it his principal residence. He is unmarried and decided at the time of closing to add his girlfriend to the deed. She signed the mortgage but was not included on the Closing Disclosure (CD). Our loan documentation system included a signature line only for the borrower. Is this correct? Also, if a borrower refinances a loan secured by their primary residence without their spouse on the loan, would the spouse be required to sign the CD? This is assuming the spouse is listed on the deed and would be given a notice of the right of rescission and be required to sign a waiver of homestead rights.
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You were not required to provide a copy of the CD to the customer’s girlfriend or obtain her signature on the CD, since she is not entitled to rescind the purchase loan and therefore is not a “consumer” who must receive a copy of the CD. Regulation Z requires that a CD be provided to…
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Is there an escrow requirement when a small lender refinances a higher-priced mortgage loan (HPML)? We have a loan for which an escrow was not established at origination that now qualifies as an HPML. Also, would the HPML escrow requirement apply to the refinancing of a business purpose loan secured by a principal dwelling?
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We believe that a small creditor would be subject to Regulation Z’s escrow requirement when refinancing an HPML, unless an exception applies, as discussed below. However, the HPML escrow requirement would not apply to the refinancing of a commercial purpose loan, since the HPML regulations apply only to consumer loans. Regulation Z defines an HPML,…
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We are an Illinois-chartered savings bank, and we are considering offering a loan modification program for owner-occupied, single-family residential properties that would allow a borrower to pay a fee to lower the interest rate on the remaining loan balance. The borrower would execute a modification agreement on the original note, and the loan would be kept in our portfolio. Are there any compliance concerns related to this program, and would any additional regulatory paperwork be required?
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We believe your proposed modification program would be permissible and, aside from the caveats noted below, would not require additional disclosures — but the documentation for the modifications must demonstrate that the existing loans are not being satisfied or released. It is possible to lower the interest rate on a mortgage loan and charge a…
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We would like to advance additional funds to a borrower and extend the maturity date of their mortgage loan. Based on the payments already made, the new loan balance would not exceed the original loan amount. However, the mortgage contains no future advance language. Can we increase the amount of the mortgage loan without recording a new mortgage? If so, are any disclosures required?
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Based on these facts, your bank may need to enter into a new promissory note and record a new mortgage in order to secure the advance of additional funds; however, if you roll up the existing promissory note into a new note, you could jeopardize your priority lien position with respect to existing creditors and…
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Over a year ago, we made an installment loan contract on other real estate owned (OREO) property owned by our bank. The borrowers now are eligible to obtain a new residential loan with us and pay off the contract. The title to the property currently is in our bank’s name. We are selling the loan to Fannie Mae, which is treating it as a refinancing transaction. For purposes of the TRID disclosures, should we treat this as a refinancing or a purchase?
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We believe that your bank should identify the loan purpose on the TILA-RESPA Integrated Disclosure (TRID) forms as a refinancing. The TRID rules require lenders to identify one of four possible loan purposes in the Loan Estimate: (1) purchase, (2) refinance, (3) construction, or (4) home equity. A purchase loan is one made to finance the…