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#1611076 - 09/30/11 02:30 PM Is this acceptable?
MB Guy Offline
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If we do a construction-only loan, with the perm financing portion of the loan undecided as the customer has stated they do not know where they want to get the perm financing, can we only do the RESPA disclosures for the construction phase initially, and then at the end of construction when the customer decides who they want to do the perm financing, do the RESPA disclosures for the perm portion if they decide to use us?
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#1611123 - 09/30/11 03:33 PM Re: Is this acceptable? MB Guy
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Yes.....if they haven't turned in an ap for the perm. I'm surprised you would do a construction-only loan without a comittmenet for permanent financing from somewhere, though.
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#1611127 - 09/30/11 03:39 PM Re: Is this acceptable? swiggles
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Swig, the reason is that the specific customers for this product are wealthy individuals who meet our requirements for private banking and want to wait to make their decision for perm financing closer to the end of construction.
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#1611129 - 09/30/11 03:40 PM Re: Is this acceptable? swiggles
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I do not see how providing RESPA disclosures on a non-RESPA covered loan helps you in any way, unless the disclosures assume the possibility of the loan becoming a single close construct to perm deal, and accounts for all the possible costs associated with that.
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#1611132 - 09/30/11 03:47 PM Re: Is this acceptable? #Just Jay
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Consider the loan to convey the lot to clarify.

Now, it seems like there is a conservative approach that if there is no set take-out of the perm financing at the origination of the loan, that we'd need to disclose for the perm portion even if the customer and we are completely unsure who will do the perm portion.
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#1611192 - 09/30/11 04:51 PM Re: Is this acceptable? MB Guy
#Just Jay Online
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I understand what you are saying, and yes, I tend to take the conservative route, but I think that if you are going to do a construct loan without proof of perm in place or evidence of matching liquidity at closing, then you have to assume worst case scenario: that the construct loan becomes the perm loan as well (unless you are willing to foreclose as your exit strategy), and then capture the applicable costs of that as well.

Again, I am just not sure that the strategy you are looking at really accomplishes your overall goal, or is in the full spirit of the rule. JMO
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#1611198 - 09/30/11 04:57 PM Re: Is this acceptable? #Just Jay
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MB-to clarify, even if a customer may go elsewhere for end financing, are you disclosing, underwriting and approving the loan as both the construction and endloan? As swiggles mentioned, what type of loan are they applying for? A straight construction loan or the const/perm?
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#1611230 - 09/30/11 05:34 PM Re: Is this acceptable? TB 12
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I apologize if I am not clear.

We would underwrite them and disclose to them a pure construction loan with no perm financing.

The perm financing portion would be open for the borrower to decide whether they want to use our subsidiary mortgage company, another lender, or us.

I understand that there is a S&S issue, and I am OK with that; I am not OK with violating RESPA.
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#1611320 - 09/30/11 06:48 PM Re: Is this acceptable? MB Guy
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OK, would this work (consider the lot conveys so RESPA applies):

1. Appropriate RESPA disclosures for temp construction portion of the loan on one set of disclosures.

2. A second set of RESPA disclosures for the perm portion of the loan if the borrower decides to use us for the perm portion as well.

3. A second closing for the perm portion, which allows us to modify, if needed, the second GFE up to 60 days prior to perm closing.
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#1611322 - 09/30/11 06:52 PM Re: Is this acceptable? MB Guy
Island Dreaming Offline
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MB Guy - In 3500.5, it says if the bank 'may' provide the permanent financing, then RESPA disclosures are needed. We have the same circumstances you describe on occasion. We provide two sets of early disclosures - one for the construction phase and one for the permanent phase. We also include the notice of reserving the right to provide updated disclosures 60 days prior to the end of the construction phase as allowed in the reg. This has been acceptable to both compliance consultant and examiners.
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#1611331 - 09/30/11 07:03 PM Re: Is this acceptable? Island Dreaming
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Pjps, thank you.

I thought we had this all resolved, except now a different lender finally spoke up and changed the game on me.

Man am I glad it's the weekend, almost!
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#1611362 - 09/30/11 07:24 PM Re: Is this acceptable? MB Guy
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If the customer has not applied with you for permanent financing, no RESPA disclosures for the permanent financing are required.

RESPA Disclosures must be provided for the construction loan IF the loan funds purchase the lot or the bank intends to do permanent financing. If the bank doesn't have a committment from anywhere, then it would be assumed that you might HAVE to take out the perm. Therefore, RESPA would be required on the construction loan.

But just because you might have to take out the perm (because you have no take out committment does NOT mean that you have to provide RESPA disclosures for a perm, as no application has been made for the perm.
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#1611371 - 09/30/11 07:28 PM Re: Is this acceptable? swiggles
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Swig, if we *might* have to take out the perm, would that not be the same as *may* take out the perm, and require us to do whatever it takes to ensure RESPA compliance, including taking the application and underwriting the perm portion of the loan simultaneous with the construction loan?
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#1611384 - 09/30/11 07:43 PM Re: Is this acceptable? MB Guy
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3500.5(b)(3) states that a construction loan is not exempt as temporary financing if the construction loan transfers the title to the first user or if the construction loan may be converted to permanent financing. That means that the construction loan is exempt. It does not mean that if you have no committment, meaning you may have to take it out, that you have to provide RESPA disclosures for the perm if the customer hasn't applied with you for the perm.

I may be just as wrong as wrong can be. However, we never encounter this scenario, because we will not consider a construction loan without a permanent take-out from OUR mortgage center....which means the customer applied there and was given disclosures for a perm. The customer, of course, is free to do the perm elsewhere, but the construction loan ain't gonna happen if WE haven't underwritten the perm ourselves to make sure the borrower qualifies. If they qualify, then we'll consider the construction loan. If they don't....no construction loan.
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#1611396 - 09/30/11 07:51 PM Re: Is this acceptable? swiggles
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Swiggles-we do the exact same. Borrower applies for both pieces and we underwrite and disclose both knowing we have take out. On the rare occasion someone takes their permanent financing elsewhere-no worries. 99% stay here and modify into the end loan.

We do have some that come to us for the construction with permanent financing somewhere else. We disclose accordingly.
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#1611398 - 09/30/11 07:54 PM Re: Is this acceptable? TB 12
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Originally Posted By: Sox Choked in 11
Swiggles-we do the exact same. Borrower applies for both pieces and we underwrite and disclose both knowing we have take out. On the rare occasion someone takes their permanent financing elsewhere-no worries. 99% stay here and modify into the end loan.

We do have some that come to us for the construction with permanent financing somewhere else. We disclose accordingly.
We don't modify into a perm. Ours are two separate products from two separate areas of the bank, two aps, two loans, etc. The end product is typically sold to an investor.
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