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#1387005 - 05/06/10 06:25 PM Construction loans and secondary market takeout
Durango Offline
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Posts: 41
I know that construction loans that are covered/ not covered by RESPA have been discussed here in depth. But here is another spin. We have in-house RE department that provides construction loans. We require that for the loan to get approved, we need to have a permanent takeout commitment in the file (not from in-house RE Dept). Sometimes those commitments are issued by third-party mortgage companies but sometimes our Secondary Mortgage department issues them. When construction loan is complete, we pay it off with the interim funds allocated for secondary market mortgages only. Then the permanent mortgage loan gets taken out by the secondary market lender (usually within 3-4 days). So, our construction loans are NOT made with intent to be converted to permanent in-house mortgages or to be kept on the Bank's books. But when our secondary market mortgage originator produces the commitment letter, it is in the name of the same Bank that does construction loans though we do not keep permanent mortgages and sell them right away. I am very confused on whether our arrangement of in-house construction that gets refinanced on the secondary market through our mortgage originator is subject to RESPA or not...
Please help!

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#1387125 - 05/06/10 07:17 PM Re: Construction loans and secondary market takeout Durango
Durango Offline
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anyone?....

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#1387129 - 05/06/10 07:18 PM Re: Construction loans and secondary market takeout Durango
swiggles Offline
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If the promissory note for the permanent financing is payable to your bank, it's your perm.....regardless of intent to sell or how long the loan remains on your books.
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#1387282 - 05/06/10 08:46 PM Re: Construction loans and secondary market takeout swiggles
Dan Persfull Offline
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Bloomington, IN
I agree. You are making the permanent loan and then selling it to an investor.

Even if the transaction was table funded you are still the originating lender/broker. See 3500.5(7).
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#1387396 - 05/06/10 11:22 PM Re: Construction loans and secondary market takeout Dan Persfull
Durango Offline
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Thank you for clarification.

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#1451688 - 10/05/10 03:23 PM Re: Construction loans and secondary market takeout Durango
Shopgirl Offline
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Southeast
Dan, Swiggles.....or anyone else that wants to chime in, please help me straighten out a war within our institution. WHAT A MESS!

Is your response in the below discussion stating "even if the transaction was table funded you are still the originating lender/broker" appropriate under our situation? We have our in-house lenders for the construction phase saying we need a committment letter for the PERM phase and our Mortgage Department fighting back and saying they won't issue a committment letter (although as I find out they are issuing some type of letter acknowleding they may take the loan out if certain conditions are met but not a true committment because no acceptance from customer). I believe it really has to do with who will have to do the early disclosures for the Perm I'm afraid.

Our situation is very similar to the original poster in that we do the construction loan in house and transfer the Perm to another lender, however we don't book the Perm loan at all. Our Mortgage Department actually works like a broker. All approvals and underwriting for the PERM phase is made through another larger financial institution. This other financial institution will then in turn sell to an investor. Now, the loan documents for the PERM phase are showing our bank as the lender, however again, we don't book the PERM, it is immediately at closing, transferred to the other financial institution to sell to an investor.

I guess my questions are........are these table funded and therefore not really coming from another lender so there would be no need for a committment letter?

I'm also wondering about who issues the Prelim disclsoures on the PERM - if the loan is considered from the same lender as the CONST and no committment needed, it doesn't seem right that our in-house people do the disclsoures because the loan would be different coming out of our Mortgage Department.

Furthermore, our Mortgage Department is not issuing a true committment to our in-house lenders, but rather just a "memo" to the file that under certain conditions the Mortgage Department 'may' finance the PERM. This is such a tangled mess and as I mentioned, trying to figure out who will do the Prelim disclsoures and if we need a committment is what I really am trying to resolve.
Last edited by Shopgirl; 10/05/10 03:29 PM.
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#1451700 - 10/05/10 03:29 PM Re: Construction loans and secondary market takeout Shopgirl
RR Joker Offline
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Not Dan, but I'll tell you how we used to handle that situation. We didn't have a "firm" commitment, we had a conditional commitment, as you've stated. We did not fund the loan, the other lender did. Under those circumstances, if we didn't have a transfer of title and weren't responsible for the perm loan and had that piece of paper, we exempted out of disclosures.

These days, we fund, then sell, so even if we had a commitment from our mortgage area, we are the lender on each and each area does their own disclosures pertinent to the product applied for.
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#1451714 - 10/05/10 03:35 PM Re: Construction loans and secondary market takeout RR Joker
Shopgirl Offline
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RR joker....this conditional commitment you speak of, was it just like a memo from one department to antoher and not something that was accepted by the customer? Also, did the loan documents close in your name or in the other lenders name?

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#1451723 - 10/05/10 03:39 PM Re: Construction loans and secondary market takeout Shopgirl
RR Joker Offline
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What name they close in to me, is not the problem...it's who funds the loan that matters.

It could be in memo format...it doesn't have to be accepted or even shown to the customer, IMHO. It does need to be a conditional commitment, however...IOW, subject to certain conditions and nothing adversely changing, they can/will make the loan.
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#1451734 - 10/05/10 03:48 PM Re: Construction loans and secondary market takeout RR Joker
Shopgirl Offline
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OKAY.....we don't fund the PERM, but I'm still a litte confused. Who issued the comittment letter to you? because for us, its like our Mortgage Department would be issuing the commitment letter to our in-house department. And when you say you exempted out of the disclosures, somebody has to do the early disclsoures for the PERM phase.....who would do those? the other lender? Well in our case, the other lender is not giving the committment, our Mortgage Departemnt is.

Maybe I'm overthinking here.

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#1451746 - 10/05/10 03:55 PM Re: Construction loans and secondary market takeout Shopgirl
David Dickinson Offline
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Central City, NE
If the mortgage dept. is funding the loan (it hits your books - even for 1 minute), then your bank is making the permanent loan and the construction phase is also subject to RESPA.

The lender funding the perm phase would provide the early disclosures for the perm phase. If your mortgage dept. is committing FOR the other lender, then the other lender is responsible for these disclosures. It's possible they have an agreement with your mortgage dept. to provide the disclosures.
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#1451749 - 10/05/10 03:56 PM Re: Construction loans and secondary market takeout Shopgirl
tcredle Offline
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We do the construction loans in house and the Bank's mortgage department issues a take out commitment to the bank. When the loan is closed for the pernament it is closed in the name of the mortgage company who approved the final financing.

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#1451773 - 10/05/10 04:14 PM Re: Construction loans and secondary market takeout tcredle
Shopgirl Offline
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Thanks David......the Perm loan never hits our books. Our Mortgage Department obviously is the liasion for the lender funding the perm phase. The lender funding the perm phase is providing the early disclosures only at the time of the perm phase. So in this case, no early disclosures need to given for the Perm phase at applicatio of the construction phase?

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#1451825 - 10/05/10 05:10 PM Re: Construction loans and secondary market takeout Shopgirl
Dan Persfull Offline
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Bloomington, IN
Quote:
What name they close in to me, is not the problem...it's who funds the loan that matters.


That would be a table funded loan, not a secondary market transaction, and you would not be exempt from providing the early disclosures.

. . . Mortgage broker transactions that are table-funded are not secondary market transactions. Neither the creation of a dealer loan or dealer consumer credit contract, nor the first assignment of such loan or contract to a lender, is a secondary market transaction (see Sec. 3500.2.)


Shopgirl, a separate department of your bank is not a different lender. Might be a different loan officer but the bank is the same lender regardless. If the applicant is applying for a permanent loan at the time of the construction loan then you must provide the required disclosures for both the construction and permanent loan.


If you don't have a commitment from another lender (financial institution) then you have to give both set of disclousures because you may (most likely) will be doing the perm.
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#1451893 - 10/05/10 06:20 PM Re: Construction loans and secondary market takeout Dan Persfull
Shopgirl Offline
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Thanks Dan. Your answer confirms what I thought all along, that this is a table funded loan and RESPA applies. However, this is still a little fuzzy at least to me on who gives the disclosures. Okay....our Mortgage Department does not do any "in-house" loans. They always go through this "other" lender. When a customer wants a Const/Perm loan, our in-house lenders will do the Const and will ask our Mortgage Dept whether they believe this borrower and the property will be approved through the other lender for a PERM. At this point if it will pass with the other lender for the PERM, our Mortage Dept issues a conditional commitment to our in house lender. However, this so called commitment does not come from the "other" lender, it is only from our Mortgage Department. This is because the other lender says they will no longer issue commitment letters. The twist to this is that our bank policy is for our in house lenders to receive a commitment letter for construction/perm loans. Now, maybe it's not appropriate for our Mortgage Dept to issue this so called committment, but if our in house lenders do the early disclosures for the Construction phase, it makes absolutely no sense for them to also do the early disclosures for the Perm phase knowing that the loan will probably be taken out by the Mortgage Department if the conditions are met. Alot of the loan fees charged by the Mortgage Departemnt are totally different than our in house disclosures would reflect. Therefore, the disclosures would mean nothing.....charges would be totally different. My thoughts were to have the in-house lenders do the early disclosures for the Const side and have the Mortgage Departement do the early disclosures for the Perm side.

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#1451899 - 10/05/10 06:27 PM Re: Construction loans and secondary market takeout Dan Persfull
RR Joker Offline
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Originally Posted By: Dan Persfull
[quote]What name they close in to me, is not the problem...it's who funds the loan that matters.


That would be a table funded loan, not a secondary market transaction, and you would not be exempt from providing the early disclosures.

. . . Mortgage broker transactions that are table-funded are not secondary market transactions. Neither the creation of a dealer loan or dealer consumer credit contract, nor the first assignment of such loan or contract to a lender, is a secondary market transaction (see Sec. 3500.2.)


Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. A table-funded transaction is not a secondary market transaction (see Sec. 3500.5(b)(7)).

My bad, we did not close these loans in our names...we closed in the funding lender's name.

Back in the day when I did the secondary market loans for this bank...I did them both ways...funded and non-funded and in other FI's name...sorry!
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#1451901 - 10/05/10 06:28 PM Re: Construction loans and secondary market takeout Shopgirl
Dan Persfull Offline
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Bloomington, IN
Short answer to a long question as I read it.

1. Your bank (mortgage department) is giving a conditional commitment, how you sell off that commitment is irrelevant IMO
2. Your bank (mortgage department) should be doing the earlies for the perm.
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#1451922 - 10/05/10 06:55 PM Re: Construction loans and secondary market takeout Dan Persfull
Shopgirl Offline
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Southeast
Thanks RR joker for your viewpoint though.

Sorry for the length Dan.

Here's my next delimia that I know is going to happen. When I tell the Mortgage Dept that they need to give the early disclsoures for the PERM phase at application, they are going to say "well we will not issue the commitment anymore". Then we are back at square 1 with our in house lenders having to do the disclsoures which make no sense when the Mortgage Dept is taking the PERM.

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#1451996 - 10/05/10 07:57 PM Re: Construction loans and secondary market takeout Shopgirl
Dan Persfull Offline
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Bloomington, IN
How you decide to issue the GFE is strictly up to your Senior Management, however you might want to read the FAQs. Whether your mortgage department or the construction department issues the GFE your bank has issued it and you cannot revise it absent a qualified changed circumstance. Switching investors is not a changed circumstance.


PS. My comment about a short answer to a long question was suppose to be jovial. smile
Last edited by Dan Persfull; 10/05/10 07:58 PM.
_________________________
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#1452023 - 10/05/10 08:38 PM Re: Construction loans and secondary market takeout Dan Persfull
Shopgirl Offline
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Thanks so much for your insight and time.

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#1452191 - 10/06/10 02:18 PM Re: Construction loans and secondary market takeout Shopgirl
Shopgirl Offline
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Dan, or any others, I wanted to bring this back up to see what your thoughts are on this.

As I call the Mortgage Dept and tell them that they need to start doing the early disclosures for the PERM phase, instead of the in-house lenders doing them, all sorts of questions and statements start coming left and right.

When our in-house lender sends the application/credit report to our Mortgage Department to see if they belive they will ba able to take the PERM, the Mortgage Dept. just looks at the single credit report presented along with the application informaiton and indicates that based on that info they probably will be able to take the PERM. The application/credit report is then returned to our in-house lender. Now, our Mortgage Dept. is saying, they don't have an application (I say they do....the one returned to in-house) and they say, well do I have to pull a tri-merge credit report because that is what the other lender requires (I say no, but not really sure on that one). The other thought was maybe this is just like a prequalification. What do you think?

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#1452193 - 10/06/10 02:19 PM Re: Construction loans and secondary market takeout Shopgirl
David Dickinson Offline
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Central City, NE
Quote:
Here's my next delimia that I know is going to happen. When I tell the Mortgage Dept that they need to give the early disclsoures for the PERM phase at application, they are going to say "well we will not issue the commitment anymore". Then we are back at square 1 with our in house lenders having to do the disclsoures which make no sense when the Mortgage Dept is taking the PERM.

Tell them to stop playing games. They are required by law to provide disclosures in this type of situation. They can't decide they just don't want to. It's not about them, it's about the consumer. This type of game playing is what is tightening up all of the mortgage regulations and a huge burden to all of us.
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#1452219 - 10/06/10 02:43 PM Re: Construction loans and secondary market takeout David Dickinson
Dan Persfull Offline
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Bloomington, IN
I agree with what David said.

It's time you bounce this up to Senior Management.

You might want to inform the mortgage department the disclosure requirements apply when the bank receives an application not when a particular department receives it.

If a teller takes a drop off application today but doesn't get it to the mortgage department until Friday then the mortgage department better get their disclosures out on Friday.


PS. When you talk to Senior Management you might want to print out this thread for support.
Last edited by Dan Persfull; 10/06/10 02:47 PM. Reason: Add additional comment.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#1452285 - 10/06/10 03:19 PM Re: Construction loans and secondary market takeout Dan Persfull
Shopgirl Offline
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Thanks so much for the confidence boost Dan and David. I think the Mtg Dept knows that the disclosures have to be done, but they just don't want to do them. They want the in-house lenders/processors to do them. However, I don't want the in-house doing them for the PERM side because the GFE is pretty much useless for the borrower if in-house did them because of difference in fees, etc, not to mention could expose the bank to losses due to a locked in inaccurate GFE....

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#1459315 - 10/26/10 12:06 AM Re: Construction loans and secondary market takeout Shopgirl
donnac Offline
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I have a question about how we're treating construction/perm financing.

Construction - portfolio lender issues early disclosures.

Perm - We offer secondary market loans (15, 30 year, etc.) and portfolio loans (3 years, etc.). When we issue the earlies for the perm, we also provide the GFE addendum that we can provide a revised GFE until 60 days before the perm closing.

Our secondary market lenders are hesitant to issue the earlies for the perm financing. Is it OK to issue the earlies for the perm financing with the addendum based on the portfolio product when there's a high probability that the customer will want the longer term secondary market loan?

I'm concerned because as another poster mentioned, the fees can be significantly different.

Thanks.

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