Construction Loan converted to Permanent Loan
Question: We made a construction loan for the purpose of building the borrower's primary residence with a 1 year term. At the time we made the loan, we did not commit to permanent financing. Therefore, we concluded that the construction loan was exempt from RESPA. We have now converted their original note to do the permanent financing. A new note was created for this modification, so it appears that RESPA would apply now, correct? If so, when does the 3 days kick in for the disclosures?
Answer: You are correct that the permanent loan is subject to RESPA while the construction loan was not. The problem with this situation is that figuring out when the three days begins can be very gray. However, looking at some RESPA principles should help - a little. The GFE is triggered by the application, and not by any other event such as the maturing of the construction loan. Therefore, the three days for providing early disclosures begins when the customer asks for or applies for the permanent loan. The fact that you already have a construction loan with the customer doesn't change the nature of the customer's request for permanent financing. The challenge for the lender is that determining when the customer actually makes the request, or application, can be very hazy. At a minimum, the lender should try to get early disclosure out in time for the consumer to consider the content. A good rule of thumb to follow would be to provide the GFE as early as possible, and certainly when the consumer firsts asks about permanent financing terms.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 15, 12/04
Privacy Policy Disclaimer Recommend This Site ! Contact Us
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
|
|
Print Friendly!
Email This Article!
Discuss NOW!