November 16, 2018 at 1:23 pm #13664
This seems to have been debated as long as I have been in Compliance, over 20 years – refinance vs renewal. However, we have encountered something we are trying to come to a resolution on. Recently, a couple of our staff attended a HMDA seminar. The speaker said that if the same loan number is used on a new transaction, that is a renewal, not a refinancing and is not to be reported for HMDA. We use the same loan number when “refinancing” loans and believe they are refinancings because the previous loan matures and a new loan is executed. The definition in Reg Z is when an existing obligation is satisfied and replaced by a new obligation by the same consumer. There have been several discussions over the years about what constitutes “satisfying an existing obligation and replacing by a new obligation.” Other discussions I’ve seen state that once a loan has matured, a “renewal” cannot be done. The speaker also stated that even if new money is added to the loan, it is not a refinance for HMDA purposes if the same loan number is used. To our staff, it seemed to hinge on using the same loan number. When we refinance a loan, the terms can change, the payment and there are times new money is added. I say “refinance” because we do see it as a refinance and have been reporting on HMDA for years. HMDA closely follows the definition of refinancing that is in Reg Z. We are not sure what to do?? Can you offer any insight?November 19, 2018 at 12:11 pm #13689
None of the regulations refer to a bank’s internal loan number accounting method as an indicator of a refinance versus a renewal. You are looking at whether you have legally replaced an existing obligation with a new obligation (see definitions below). It sounds like your process has historically relied on the definitions in the regulations; I’d recommend you keep that process/criteria.
1003.2(p) Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.
And Regulation Z, 1026.20(a) defines refinancing as:
A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing:
(1) A renewal of a single payment obligation with no change in the original terms.
(2) A reduction in the annual percentage rate with a corresponding change in the payment schedule.
(3) An agreement involving a court proceeding.
(4) A change in the payment schedule or a change in collateral requirements as a result of the consumer’s default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in §1026.4(d).
(5) The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures
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