Modifying a temp. construction loan to permanent financing - should it be tested for higher priced mortgage - is escrow required?

part 1 If the primary residence of the borrower, yes.

part 2 If secured by a first lien (and an HPML), yes.

Modifying a temp. construction loan to permanent financing.

The first call should be to your legal counsel. Modifying a construction loan to a permanent loan is tricky business.

We modify all of our construction loans (unless they go secondary market) into permanent financing and YES, you must do the HPML check at that time....if, as raitchjay pointed out, it is an owner occupied 1st lien.

If it is true modification and not a refinance, the transaction would be exempt from Regulation Z.

Our bank policy is that if the loan application was taken on or after 4-1-10 and it is being modified from a single pay (no escrows) to amort loan (possible escrows) we do the HPML check and establish escrows at that time.

Bank policy is fine, but either it is a refinance under Regulation Z or not. If you are treating it as a refinance, then there is more to it than checking HPML and establishing escrows. You would need early TILs, GFE, and HUD-1s. IMHO, the days of modifying a construction loan into a permanent loan have long past. I would not be surprised to see the FDIC or other regulator view this as a UDAP by trying to avoid full TIL and RESPA dislcosure laws.

...not a refinance as no new Note and DOT...but thanks for your point of view...