Compliance Alliance Question of the Week

Question:
Our current practice on residential balloon mortgages is to extend the maturity date prior to the balloon period if the customer requests it prior to the balloon and the borrower meets certain conditions. This is completed with a change in terms document leaving the current amortization period the same. The examiners have reviewed the process and are ok with this. We have a customer that has approached the bank and would like to extend the maturity but would like to shorten the amortization. She currently has 13 years left, but wants the bank to shorten it to 12. I guess my concern is, do we now have to treat it as a new request because it is a change that is increasing the monthly burden, not decreasing it.
 
Answer:
So the rules on whether a "modification" would be considered a "refinancing" for Reg. Z purposes can be found in 1026.20 here: https://www.consumerfinance.gov/eregulations/1026-20/2016-14782_20160627#1026-20
 
Generally speaking, if there's satisfaction and replacement, or if the bank changes the rate based on a new variable rate feature, it will be considered a refinance which would require new disclosures. And although the rule doesn't specifically say this, we also interpret that it's best practice to provide new disclosures for any increase in credit, or if the prior obligation has already matured. So if any of these are occurring, that's when a new set of disclosures should be provided--but from what you describe, it doesn't sound like any of these are happening here.