We currently do one-close construction loans. I am curious if anyone else out there does this and if they will continue to do so after the rule takes effect. I am thinking it will be difficult to calculate ATR because the construction phase is exempt yet the permanent phase is not. Any thoughts on this? Should we be looking at doing two seperate loans vs one?

Great question waterdog. I am also interested in how a one-close construction loan should be structured in the new ATR/QM world.

Would you not just have to qualify them at the full funding/highest amount of the loan and escrow payments to meet ATR guidelines? Highest loan amount, highest rate, etc.

Not sure how else you could comply with ATR. I think you have to treat the perm portion just as you would any other mortgage loan. JMO.

My Bank does not offer construction to perm but if we did I would still do 1 closing. I don't think it will be difficult to qualify the customer because you would use the perm payment to qualify the customer (This should be the higher amount because it includes principle payments). It shouldn't really change much from current practice (I always underwrite off the highest payment amount).

It is my understanding the construction period is exempt if the period is 12 months or less. What if the construction period is over 12 months for larger loans?

If the construction period is over 12 months the construciton phase is not exempt. The whole loan will be treated as 1 loan instead of 2 seperate transactions.

In that case, I would close in 2 seperate transactions if you want the perm part to be covered as a qualified mortgage.

Look at the commentary for 1026.43(a)(3)- You can have a 12 month construction period with a renewal option that is still exempt. But I would be careful and make sure if you use this that the orginal plans were to finish the construction phase within 12 months.

For those of us who are currently originating a one-close construction/perm loan, will it still be possible in the new ATR/QM world? We currently qualify and disclose on the permanent loan portion.

How should a const/perm be structured in order to comply with the QM portion of the rule? If you have a construction phase of less than 12 months plus the permanent phase, isn't that over 30 years?

I am interested in the answer to this one.

Also, what about a one close loan with a 3-6 month remodel phase for a primary residence with perm financing? Would the initial remodel phase be exempt?

Can anyone please answer my question on the remodel phase on a one close loan that has perm financing? Do you think the remodel phase would be counted as the construction phase and be exempt? Opinions??

We have an "all-in-one" construction loan as well. Our construction loan program has a "321" prepayment penalty in the permanent phase. I am assuming that if we want the permanent loan to qualify as a QM we will need to re-structure the penalty so it doesn't exceed 2% and will have to offer an alternative that doesn't have a prepayment penalty. The other issue is that points/fees tend to be higher on this type of loan so may bump the loan over the 3% threshold. Does anyone else have these potential issues?

the new rule allows the construction period to be "renewed" at the end of 12 months for another 12 months...If you have a construction loan you KNOW will be 18 months, do you order it that way or just order 12 months and then "renew" with a modification at the end of the 12 month period?????

I don't think you can equate remodel/perm financing with construction/perm.

What about the commentary to 1026.43(a)(3)-2? It says, in part: "a construction-to-permanent loan is a potentially multiple-advance loan to finance the construction, rehabilitation, or improvement of a dwelling that may be permanently financed by the same creditor."

Does improvement = remodel?

To borrow this thread and go in another direction. Say the bank does a 12 month construction loan, and has a permanent takeout from XYZ mortgage. After construction is complete, the borrower no longer qualifies for the permanent loan (e.g. recent job loss). Other than foreclosure, what options does the bank have? If the bank makes a permanent loan, then it violates ATR.

If a similar topic was discussed in another thread, please point me in the right direction.

MarkB

I'll tell you what I think my bank would do, elcinoca. I think we would have the documentation that showed the construction loan was made in good faith (copy of takeout from XYZ, or even ourselves). Document the 'change in circumstances' and likely make the loan. Yes, it would be a non-QM and carry risk and it would not meet ATR requirements, but I just cannot see jumping to foreclosure as a solution to cure a 'violation'.

That, to me, just sounds wrong.