According to the commentary 1. Irregular transactions. The annual percentage rate for an irregular transaction is considered accurate if it varies in either direction by not more than 1/4 of 1 percentage point from the actual annual percentage rate. This tolerance is intended for more complex transactions that do not call for a single advance and a regular series of equal payments at equal intervals. The 1/4 of 1 percentage point tolerance may be used, for example, in a construction loan where advances are made as construction progresses, or in a transaction where payments vary to reflect the consumer's seasonal income. It may also be used in transactions with graduated payment schedules where the contract commits the consumer to several series of payments in different amounts. It does not apply, however, to loans with variable rate features where the initial disclosures are based on a regular amortization schedule over the life of the loan, even though payments may later change because of the variable rate feature
Would this mean that a construction to permanent single phase loan would not enjoy the .25% tolerance because of the "initial disclosures are based on a regular amortization schedule over the life of loan?". For a construction to permanent single phase the initial disclosures are based only on the permanent part of the loan. Am I thinking about this correctly?
No. No. When you treat a two-phase financing as a single "transaction", that means you apply the irregular transaction test to the entire credit. The construction phase allows multiple advances, and that's enough irregularity to claim the 0.25% tolerance.
Great, that is good news. Now let me run this scenario by. We have a loan that is a construction to permanent single phase loan. When we originally disclosed, we only based the truth in lending on the permanent financing part and completely left off the interest only aspect. This resulted in a ETIL that did not have the language indicating an "Interest only period with payments due monthly". When the final TIL was being produced, the APR was off by .19% (due to not including the interest of the construction period into the prepaid finance charge) which led us to believe we had a tolerance violation. Well being that the loan is irregular we get to enjoy the .25% HOWEVER my thoughts are because the ETIL was missing the "interest only period with payments due monthly" we should still redisclose the ETIL with that language on there regardless of the APR. Any thoughts on this conundrum?
ETIL that did not have the language indicating an "Interest only period...."
Your ETIL also had an understated FC, understated TOP, and overstated AF. Assuming your FTIL was accurate, reimbursement is not a consideration. I have no idea whether or how the recent "delayed closing" rule would apply.
Yeah, all of that was messed up, we redisclosed and are waiting the three days to close. I am trying to validate the APR and I am having a real hard time with APRWin so I switched with trying to use the appendix D and am completely not getting it. Is there anyway someone could walk me through this?
1. At the time the loan closed, did you know the exact amounts and dates of any of the construction advances? 2. During construction, will interest accrue on (a) the full commitment amount?, or (b) only the amounts advanced?
1. What is the date of the note? 2. What is the scheduled date of the first amortizing payment? 3. Are the amortizing payments monthly? or some other frequency? 4. Does the note state that interest during the construction phase will accrue on a daily basis (most likely) or a monthly basis?
Appendix D provides a way to combine known and unknown information in order to produce a complete TIL disclosure. In a CST/PRM loan, you know the principal loan amount, date of consummation, prepaid Finance Charges, and the payment schedule (dates and dollar amounts) for the permanent phase. In your case, you don't know the amounts and timing of the advances...and therefore you must estimate the amount of interest that must be included in the Finance Charge.
Appendix D tells you to estimate the interest payable during the construction period to be included in the total Finance Charge as follows:
Days_in_construction_phase = 12/27/15 (date the perm phase begins) - 12/27/14 (date of consummation) = 365
$Estimated_construction_interest = $Full_commitment x .5 x %Simple_interest_rate x 365 (Days_in_construction_phase) / 36500 (round result to nearest penny)
For APR calculation purposes, Appendix D tells you to calculate an adjusted Amount Financed and first payment period as follows: $Amount_Financed_adjusted = $Principal_loan_amount - $Prepaid_FC - $Estimated_construction_interest
First_payment_period_adjusted = 1 month (12/27/15 to 1/27/16) + 12 months / 2 (half the period from 12/27/14 to 12/27/15) = 7 months
Since the payments during the perm phase are payable monthly, the "unit period" for APR calculation purposes is 1 month. Therefore, the length of the adjusted first payment period (for calculation purposes only) is 7 unit periods plus 0 odd days.
Combined with your known perm payment schedule, you now have all the data required by APRWIN for an APR calculation for a normal installment loan: Amount Financed: enter the $Amount_Financed_adjusted Disclosed APR: for lack of a better guess, enter the construction phase interest rate Disclosed FC: enter nothing & ignore what is calculated Loan type: Installment Payment frequency: Monthly Payment streams: enter the amounts and numbers of payments in all streams (from your note); for the first payment timing, enter 7 unit periods plus 0 odd days; if there are multiple payment streams in your permanent loan, allow APRWIN to default to the unit period values it calculates.
To calculate the total Finance Charge, add up all the payments in the perm phase and subtract the principal loan amount. To this value, add the Prepaid Finance Charge and the $Estimated_construction_interest.
Compare what you have just calculated with the disclosure given to your borrower. If the APR or FC are understated by more than the allowable tolerance, you have a damaging violation and reimbursement must be considered. Should your regulator discover understatements of this type during an exam, you will be ordered to make reimbursements to all affected borrowers.
The irregular designation is based on whether there are multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment). Irregular payment periods, or irregular payment amounts, would be reflected on the Amortization Schedule, correct?
I am confused as Appendix D states: 3. Repayment scheduleâ€”The number and amounts of any interest payments may be omitted in disclosing the payment schedule under Â§1026.18(g). The fact that interest payments are required and the timing of such payments shall be disclosed.
If the Amorization Schedule does not reflect the irregular payment periods, or irregular payment amounts (i/o payments for a C2P loan), is the loan still designated irregular?
For purposes of this paragraph (a)(3), an irregular transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment).
If these are loans for which you are using Appendix D - are they not multiple advance?
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