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Modification / Extension

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  • #2369
    dmurray
    Participant

    We’re doing a mod/ext secured by consumer’s homestead where we are modifying the lien (not a replacement, not a refi). Need to know if early disclosures are to go out? APR is going up by .432% (obviously over the tolerance of 0.125%) and the loan amount is going up by more than double. I can’t think of a reason why we wouldn’t re-do disclosures but i’m getting a little push back from the lender & assistant. Anywhere in the reg that stipulates what you need when doing a mod/ext? Any response will be helpful and I’m hoping that I’ve given you enough info to help me 😀

    THANKS!!!!!!!!!! 😎

    #2836
    jholzknecht
    Keymaster

    Generally a new TIL disclosure is needed when you are doing a refinance ( a new note), but not when you are doing a modification (an extension/modification agreement. But some examiners demand a new disclosure on a modification when the modification are extensive, such as increasing the APR in addition to extending the maturity date. The safe answer is to give the new disclosure. While the argument for not giving the new disclosure is winnable, do you really want to get into an argument with the examiner.

    #2842
    dmurray
    Participant

    Thank you!

    #2735
    mfowler
    Participant

    In regards to a modification/extension agreement, we have not been charging our customers BUT want to implement a fee. I would not think this would be a prepaid finance charge as we’re not going to know at application who will be modifying/extending their loan.
    Would we need to disclose the fee, if any, up front? For compliance purposes, how is the best way to handle this?

    #2857
    JGo9
    Participant

    mfowler,

    I believe from reading Jack’s response above, you would not include it as a prepaid finance charge initially. After all, how will you know that you’ll be doing a modification or extension when you initially make the loan?

    I personally would recommend not charging a fee; as that leaves everything simple, clean, and limits what you’ve done being questioned by auditors and examiners. That being said if you do charge a fee, you might look at just doing a new note because I think you’ll cause yourself to have to give your disclosures again to ensure compliance.

    Jack alluded to this earlier, in that if you make big sweeping changes to the loan, then some examiners are considering this to trigger redisclosure, like in a refinance. I tend to agree with them. If you are making small changes say to the payment date, or extending the loan a couple of months, then I don’t think you’ll have much question if you don’t charge a fee.

    #2858
    mfowler
    Participant

    Thank you, and appreciate your comment! Any significant changes would institute a refinance.

    #2863
    jholzknecht
    Keymaster

    I agree with the answer provided by JGo9. If you make a loan in 2011 you have no idea at the time that loan is made if it will be modified or extended in the years to come. If the borrower requests action in 2012 and as a result you decide to modify or extend the loan, you may, to the extend allowed by state law, impose a fee at that time. Generally a new disclosure is needed when you refinance a loan, not when the loan is extended or modified. If no disclosure is provided at the time of extention/modification then the fee is still not disclosed. As observed by JGo9, examiner’s often expect a disclosure for an extension/modification when a fee is charged or when more extensive changes are made.

    In your state you can probably charge the fee, depending on which state statute you have chosen to lend under. Check the statute you have selected to assure the fee is legal and then you should have the borrower sign a statement agreeing to the fee. The statement could be part of the extension/modification agreement.

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