I had a bomb laid in my lap late Wednesday afternoon so I'm scrambling to get some things worked out for our construction loans. I am currently in a semi-dispute so I would like a few opinions. I know my opinion, I just need a couple of others.

For reference you can look at .37(a)(10) & (b)(6).

9 month interest only fixed rate construction only loan. Interest payments are based on the current outstanding balance.

Should the product be disclosed as:

8 mo. interest only, fixed rate

or

9 mo. interest only, fixed rate


Should the answer to "Can this amount increase after closing?" for the Monthly Principal & Interest payment in the Loan Terms section be answered Yes or No?

I am currently reviewing a Loan Estimate for a similar loan and have the same question and would appreciate any assistance anyone can provide.

FWIW my opinion is 8 mo. interest only, fixed rate and Yes.

May I ask why you feel that the product should be disclosed as 8 months if the loan has a term of 9 months?

I read the regulation to state - (iv) The disclosures required by paragraphs (a)(10)(i)(A) and (B), and (a)(10)(ii)(A), (B), (C), and (D) of this section must each be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable.

I am confused because the interest rate is fixed for the entire term.

One other question - Do you feel the AP Table is required for these types of loans?

The disclosures required by paragraphs (a)(10)(i)(A) and (B), and (a)(10)(ii)(A), (B), (C), and (D) of this section must each be preceded by the duration of any introductory rate or payment period, and the first adjustment period, as applicable.

My opinion is based on the above. In my example there are 8 interest only payments and 1 P&I payment. The interest payments are based on the outstanding balance therefore depending on advances made the interest payment can increase.

If the payments can increase I do believe AP table would be required.

I have one major software company disclosing 8 mo. interest only, fixed rate and Yes. But I have another major software company disclosing 9 mo. interest only, fixed rate and No.

Our software company is disclosing 9 mo. interest only, fixed rate and No. Also, no AP table.

Thank you! I sent these questions to the legal counsel at one of our software vendors. I will forward his response when I receive it.

I ran a test on a 6 month loan, not a 9, but ours says 5mo. interest only, fixed rate, and No. No AP table, either.

However - the interest payment is calculating as if fully disbursed because we enter the entire principal line amount as a disbursement 'held available for draw.' It's the only way to end up with either $0 or whatever closing fees are being paid in cash in the 'due to/from borrower' line. If I leave out the disbursement, it shows the whole of the line amount as cash to borrower.

Without specific guidance from the rules regulators that wrote this its nearly impossible to understand what they are requiring, especially since there is no H-form illustrated for a "construction-interest only" loan that carries a fixed rate.

.37(b)(6) Does not appear to fit the circumstances as it seems it relates to changes in interest rate.
.37 (i) Does appear to apply as it refers to changes not due to interest rate? I do remember reading that the "balloon payment" would be shown (P& I) as the final payment on the AP Table.

Prior TRID-Construction Only loans were shown with highest interest payment based upon the full commitment. They were
12 months construction only loans and disclosed based upon App. D. (11 interest only payments + 1 balloon payment due of P&I.

My answer would be Yes, Yes and Yes. Yes to AP table.

Becca: Is that result using LP?

Dan: Its a little of a worry when the guy I love to quote is not having a good feeling about this! Thanks for all your replies on BOL

Best of Luck to all with TRID!

Yes, and I stand corrected - it's using the 50% rule. So I *think* it should be saying Yes to payment increase and showing the AP table.

Dang.

These are also balloon loans and not interest only loans. Refer to the commentary in Appendix D that overrides the general guidelines.

The following is what Randy is referring to.

7. Relation to §§ 1026.37 and 1026.38. A creditor must disclose a projected payments table for certain transactions secured by real property, pursuant to §§ 1026.37(c) and 1026.38(c), instead of the general payment schedule required by § 1026.18(g) or the interest rate and payments summary table required by § 1026.18(s). Accordingly, some home construction loans that are secured by real property are subject to §§ 1026.37(c) and 1026.38(c) and not § 1026.18(g). See comment app. D-6 for a discussion of transactions that are subject to § 1026.18(s). Under § 1026.17(c)(6)(ii), when a multiple-advance construction loan may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction. Following are illustrations of the application of appendix D to transactions subject to §§ 1026.37(c) and 1026.38(c), under each of these two alternatives:

i. If a creditor uses appendix D and elects pursuant to § 1026.17(c)(6)(ii) to disclose the construction and permanent phases as separate transactions, the construction phase must be disclosed according to the rules in §§ 1026.37(c) and 1026.38(c). Under §§ 1026.37(c) and 1026.38(c), the creditor must disclose the periodic payments during the construction phase in a projected payments table. The provision in appendix D, part I.A.3, which allows the creditor to omit the number and amounts of any interest payments “in disclosing the payment schedule under § 1026.18(g)” does not apply because the transaction is governed by §§ 1026.37(c) and 1026.38(c) rather than § 1026.18(g). The creditor determines the amount of the interest-only payment to be made during the construction phase using the assumption in appendix D, part I.A.1. Also, because the construction phase is being disclosed as a separate transaction and its terms do not repay all principal, the creditor must disclose the construction phase transaction as a product with a balloon payment feature, pursuant to §§ 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), in addition to reflecting the balloon payment in the projected payments table.

Dan, the above is what I was talking about at some point during this conundrum. Does it change your opinion?

No, it just adds another wrinkle to the disclosure. Honestly I had looked at this before and let it slip through the cracks.

If using Appendix D to disclose the construction loan as a separate transaction then the above cite requires the product to be disclosed as a balloon payment instead of interest only.

I'm beginnig to think the software companies simply decided they weren't going to support construction loans.

So using the LE for a construction loan-balloon 1yr would be shown as:

Purpose: Construction

Product: 1 year Fixed Rate-Balloon Payment

Correct??

Year 1 Balloon Payment, Fixed Rate

FWIW - we are showing our 1 yr fixed rate interest only construction loan PRODUCT as "11 mo. Interest Only, Fixed Rate", we have a Balloon payment due in the Loan Terms section "at the end of year 1" and I agree with how this is showing. And I believe we should be getting the AP table but it is not yet showing.

So for your 9 month interest only fixed rate construction, i believe the product will be "8 mo. Interest Only, Fixed Rate".
Can this amount increase after closing? For monthly P&I - no
For Balloon payment - yes, you will have to pay xxx at the end of year 1 (which I believe would be correct even for your 9 mo loan - 1026.37 b8 - The due date of the maximum amount of the ballon payment required by b7ii of this section shall be disclosed as the year in which the event occurs, counting from the due date of the initial periodic payment.)

SaaL - Apparently you have failed to read the commentary to Appendix D if you are comfortable that you are disclosing your construction only loan product correctly.

Why do you feel you need an AP table?

No, I've read Appendix D - I may not be applying it correctly and I know there's some ambiguity related to proper disclosure of construction only loans under TRID but I did in fact read it. Many times. I realize the AP table isn't specifically called for in App D as cited above - it is saying that you must disclose the balloon in a certain way when you are disclosing the construction loan separately, but I don't take that to mean that is all you have to do. You still have to comply with the other requirements of the loan estimate and I believe the AP table requirements would still apply.

I'm reading the instructions for the Adjustable Payment Table and since I have a periodic principal and interest payment that will change from interest only to a balloon I believe I need the table to disclose my Interest Only,

I could change my mind - construction only and one time close construction loans are proving to be very challenging to disclose properly - but that's what I'm looking for on my form at the moment.

First - scroll back in this thread and read the highlighted area that Dan highlighted in the Appendix D commentary. These are construction interest only loans and are to be disclosed as balloon loans.

A final balloon payment alone does not trigger the AP table.

As far as disclosing the product as a balloon instead of interest only, since our loan has both features and interest only trumps balloon when determining product, I still believe the product would be interest only (or that I could make a decent argument for that)- even though it does have a balloon payment feature as well. I'm disclosing it as a product with a balloon payment feature as the Appendix specifies.......that also has an interest only feature, and since I can only disclose one - under the section noted 1026.37 (a)(10((ii)(D) seems to me it would be interest only.

I am interested to see if anyone has a sample Loan Estimate for the type of construction-only loans we do:
12 months
adjustable rate (can adjust daily)
interest only (for which we "hold back" the interest in reserve)
with a balloon payment at maturity.

So Randy/Dan, do you really think App D "overrides" the general guidelines? I have been trying to make the two work together. It seems to me it leaves alot open to interpretation but I think that's a big part of the reason we're all coming up with such different answers.

And I did think that the AP table would be required in a balloon scenario (periodic principal and interest payment may change after consummation not based on adjustment to the interest rate). But there's no scheduled p&i, just i until the balloon. Guess I need to look up the definiton of "Periodic principal and interest". Something to think about....

SaaL.

Appendix D is specific - it trumps the general guidelines.

"The creditor determines the amount of the interest-only payment to be made during the construction phase using the assumption in appendix D, part I.A.1.

......the creditor must disclose the construction phase transaction as a product with a balloon payment feature, pursuant to §§ 1026.37(a)(10)(ii)(D) and 1026.38(a)(5)(iii), in addition to reflecting the balloon payment in the projected payments table."


But you are free to disclose as you see fit for your organization.