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#2067399 - 03/03/16 07:36 PM Single Transaction Combined Construction LE
Luv2run Offline
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We participated in the Know Before You Owe webinar on Construction Loans and I came away somewhat more confused than before. For instance, it was stated that per appendix D the projected payments table must reflect the interest-only payments during the construction phase in the first column, followed by the appropriate columns reflecting the amortizing payments.....The next slide indicated per 1026.37(c)(1)(iii)(B) that if the interest only feature is less than one year then a range of payments reflecting the interest only period and the subsequent P&I payment should appear in the first column.

So, we do not follow appendix D in this case?
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#2067618 - 03/04/16 06:36 PM Re: Single Transaction Combined Construction LE Luv2run
JPJ Offline
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I think they meant the Year 1 column will show payments ranging from the estimated interest-only payment (still following Appendix D) to the fully-advanced P&I payment.

I'm hoping the ABA will provide a transcript of the webinar, so we can read and re-read what was said.

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#2067634 - 03/04/16 07:07 PM Re: Single Transaction Combined Construction LE Luv2run
Jerod Moyer Offline
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You follow appendix D to calculate the initial interest only payment. In the example provided (Const to Perm one time close), the interest only phase converts to P&I in the first year; therefore, you must disclose a range of payments. Low end being the interest only payment (calculated via appendix D) and the high end being the maximum P&I payment.
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#2067644 - 03/04/16 07:25 PM Re: Single Transaction Combined Construction LE Luv2run
Darth HMDA, CRCM, CAMS Offline
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I love how they didn't provide any examples of the tables - just the reg...

clear as mud smile
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#2067648 - 03/04/16 07:37 PM Re: Single Transaction Combined Construction LE Luv2run
justsayjulie Offline
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Darth, during the webinar, we sent in questions requesting examples, and also asked for them in the post-webinar survey. Really hoping they come through with some.
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#2067681 - 03/04/16 08:40 PM Re: Single Transaction Combined Construction LE Luv2run
Luv2run Offline
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I agree Darth.....would appreciate some samples. My LOS is no set up for a range of payments for our 6 month interest only construction perm. I dread the upcoming battle to get it resolved!

Thanks all. Just wanted to be certain I understood what was said as it took me by surprise. UGH!
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#2067771 - 03/07/16 02:42 PM Re: Single Transaction Combined Construction LE Jerod Moyer
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So do you split the year one column into two sub-sections, one for the Appendix D calculation and one for the full due payment? Our institution listened in to this as well and we were also taken by surprise by this portion of the presentation. Since the Reg only permits for full years to be disclosed in the payment columns we don't understand how to show months only in the first year column. Any information would be appreciated. Our LOS is Easy Lender. THANKS!!

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#2067785 - 03/07/16 03:10 PM Re: Single Transaction Combined Construction LE Luv2run
Luv2run Offline
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Banker we are on the same LOS. I have requested our IT dept request a PR immediately. They will probably request a quote from the regulation to make the change. I suggest you also put in a request for the change so it has more teeth to it than just one bank making the request.
Last edited by Luv2run; 03/07/16 03:12 PM.
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#2067786 - 03/07/16 03:19 PM Re: Single Transaction Combined Construction LE Luv2run
Banker 1025 Offline
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Will do. I will follow up with our Easy Lender coordinator. Thanks!

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#2067791 - 03/07/16 03:26 PM Re: Single Transaction Combined Construction LE Luv2run
John Burnett Offline
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The instructions delivered during the webinar indicate that the first column will include a range of payments, with the low amount being the interest only payment amount during the construction phase and the high amount being the highest amortization payment amount during the first year. You don't split the column.
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#2067904 - 03/07/16 08:01 PM Re: Single Transaction Combined Construction LE Luv2run
Luv2run Offline
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ssooooo.....Let's say the payment range would be $446.97-$1243.13. Would the words "only interest" follow the range of payments.

$446.97 - $1243.13 "only interest" even though $1243.13 represents the onset of P&I payments in month 7?
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#2067907 - 03/07/16 08:12 PM Re: Single Transaction Combined Construction LE Luv2run
John Burnett Offline
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The words "only interest" would follow the payment they described. $446.97 (only interest) - $1243.13.
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#2067911 - 03/07/16 08:18 PM Re: Single Transaction Combined Construction LE Luv2run
John Burnett Offline
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WFIW -- There's no place in the rule that explains my response -- but it seems to explain the range better and doesn't suggest the whole range is interest only.
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#2068062 - 03/08/16 06:36 PM Re: Single Transaction Combined Construction LE Luv2run
NY Compliance Offline
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We are struggling with how to disclose a range when our interest only payments during the construction phase are monthly and the principal & interest payments after are biweekly. Not sure how to make that clear, does anyone have any advice to offer?

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#2068070 - 03/08/16 06:54 PM Re: Single Transaction Combined Construction LE Luv2run
John Burnett Offline
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Advice? Sure -- split the disclosure into one for construction and the other for the permanent phase. I know that's not what you wanted, but it's the best I can come up with.
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#2068104 - 03/08/16 07:53 PM Re: Single Transaction Combined Construction LE Luv2run
Luv2run Offline
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Thank you for your guidance John!
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#2253780 - 05/11/21 08:58 PM Re: Single Transaction Combined Construction LE Luv2run
Compliance NABW Offline
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One thing I can't find clearly stated is what "Year 1" exactly encompasses. Is it from the Closing Date, or is it based on when payments are made? So, let's say you have a 9 month interest only construction phase on a 1 set of disclosures C-P loan with a 30-year perm phase, but the first payment doesn't start until the 6 month (just trying to get a concept down here). Is "Year 1" from the Closing Date, or does it kick in with the 1st Payment in the 6th month? If the latter, then do you apply the same range mentioned above regarding the P & I with the column for Year 2 to reflect where you have both the interest only payments and the P & I payment. And, then you go with just the P & I in another column for Years 3-31?

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#2253782 - 05/11/21 09:11 PM Re: Single Transaction Combined Construction LE Luv2run
rlcarey Offline
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I am confused. Why would you not have a payment until month 6 and why would there be a range in Year 2, unless the permanent loan was an ARM and the interest rate changed annually.?
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#2253796 - 05/12/21 01:38 PM Re: Single Transaction Combined Construction LE Luv2run
Compliance NABW Offline
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As far as payment until month 6, this is just an imaginary scenario. I am trying to understand a concept with timing for the Projected Payments table. The Range in Year 2 would be because you would have Interest Only payments for the first 3 months or so of Year 2 and then you would have P & I payments for the remaining 9 months of the year. This would be if the table starts from the closing date and not when payments begin.

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#2253798 - 05/12/21 01:54 PM Re: Single Transaction Combined Construction LE Luv2run
rlcarey Offline
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Payments on a construction loan is usually based on Appendix D, which would call for monthly interest only payments based on half of the loan amount outstanding. With as little guidance as there is for disclosing construction loans, doing anything different is just going to open you up for potential disclosure errors and likely your LOS will not support it. I am not sure how you would have interest only payments in the first three months of the second year. That would mean that the construction interest only period was 15 months and it would disqualify the loan for QM status.
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#2253804 - 05/12/21 03:09 PM Re: Single Transaction Combined Construction LE Luv2run
Compliance NABW Offline
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Granted, I understand your points. Again, just trying to get a feel for the Projected Payments table here. You would have a total period of 15 months, but only making 9 payments. So, is your understanding then that the "Year 1" is from the Closing Date and not when the payments start? If the Interest Only payments do carry over into Year 2, then do you have a range in the Year 2 column? A real world example could be 12 monthly payments with a somewhat delayed first payment. For example, let's say you close on 5/4/2021. The first IO payment is due 7/1/2021. The 12th payment would be due 6/1/2022. This would be in Year 2 if the Year 1 is determined to end on 5/3/2022. So, you would have the IO payment on 6/1/2022 and then you kick into the P & I payment afterwards. This would seem to result in two separate payment streams for Year 2.
Last edited by Compliance NABW; 05/12/21 03:10 PM.
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#2253809 - 05/12/21 04:17 PM Re: Single Transaction Combined Construction LE Luv2run
rlcarey Offline
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It is rather hard to talk about hypotheticals that I am sure you will not find a LOS to support. If you have a LOS system - plug in a test loan with the parameters you are proposing and see what it spits out. Regarding whether the projected payments tables are correct, you would compare the results to the requirements in 1026.37(c).
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#2253837 - 05/12/21 08:30 PM Re: Single Transaction Combined Construction LE Luv2run
Compliance NABW Offline
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Yes, the issue is 1026.37(c) doesn't seem to be addressing my question. Forget the hypotheticals then. Does the table start from the Closing Date or from the 1st Payment Date? If you find no answer either, then just say you see nothing that provides a definitive answer.

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#2253846 - 05/12/21 10:31 PM Re: Single Transaction Combined Construction LE Luv2run
rlcarey Offline
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If you have a 15 month construction phase, then your first column would be Years 1-2 and you would have the monthly interest only payment as the minimum and the monthly P&I payment as the maximum and you would also have the label "Only Interest" below them. Your second column would begin at Year 3. Since there was no payment change in Year 1, it would not be a separate column.
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#2253927 - 05/14/21 03:22 PM Re: Single Transaction Combined Construction LE Luv2run
Compliance NABW Offline
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Thank you for the explanation. I'm still a little confused as to why Years 1-2 would be combined, but believe I mostly understand it. This is because the initial periodic payment stream would last through that time period? There is no hard Year 1 requirement? It is whatever the initial stream covers if greater than a year?

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