We have an issue and are not really sure what to do about it. We made a construction loan in June 2014 with no take out letter for permanent financing. The construction phase is over and the customer wants to continue with us for the permanent part. The problem is that his credit and income was a lot better in June 2014 than it is right now and we probably can not prove ability to repay the loan based on the information and numbers given to us by the customer. What are our options at this point on how to handle this loan?

Thank you.

Why would this be different that any other new application?

Has the loan matured? If not maybe you could check with your legal counsel to see if you can modify it.

It hasn't matured yet. We checked and we can modify it to permanent. Since this is going from construction to perm and a new product, wouldn't TRID documents also be triggered in this?

If you're not refinancing then you don't need TRID documents, IMHO.

I know a refinance is TRID trigger but in this transaction, the rate and product will be changing. Just seems like that the amount of change would trigger TRID but the less paper we have to deal with the better.

We have been in this position several times. It is considered a new transaction so we do all new disclosures. We go ahead and do the end loan, even if they wouldn't otherwise qualify. Our argument has been that they wouldn't qualify for a new loan, but that we either have to foreclose or refinance it to the best possible scenario.

The examiners haven't criticized us, but it would be pretty difficult for them to do so since we're doing the best we can under the circumstances to keep the borrowers in their home.

Since they don't qualify, however, and we really do want them to be able to make their payments, we sometimes stretch their loan out to 25 years (we normally stop at 20) and keep the rate as low as we can.