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Disclosures: Construction & Permanent Financing
by Andy Zavoina and David Dickinson, BOL Gurus

Question: My bank has a mortgage department (not a separate company) that closes loans in the bank's name, then sells the loan to the secondary market. It is very common for the bank to finance the construction of a personal residence that has been pre-approved for permanent financing through our mortgage department. Our compliance officer advises that since the mortgage department is not a separate company and they close their loans in the bank's name, this type of financing is considered permanent to the bank and we (the bank) should produce GFE's and Early TIL's. We have been disclosing as she advises, but have been disclosing the terms of the construction financing, not the permanent. Now for my question. Is this incorrect? If so, if we disclose permanent terms and the mortgage department discloses permanent terms, isn't this double disclosure? Another issue is that we (the bank) don't always know the terms of the permanent (rate, term, etc.) when the construction financing is processed. Can you offer any guidance on how to handle situations like this?

Answer by Andy Zavoina:

226.17(c)(6) allows you to disclose the construction - perm as one, or separate loans. But you can't disclose only the construction and do two separate loans.

Answer by David Dickinson:

This post should be helpful. I agree with your compliance officer. You say that you don't always know the terms of the permanent loan? That's why you give a Preliminary TIL disclosure and a Good Faith Estimate.

First published on 07/21/03

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