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#1877544 - 12/10/13 09:22 PM Single-closing construction-to-perm
BLB 100 Club Joined: Jan 2006 Posts: 111	It seems clear that the construction phase of the construction to perm loan is exempt from the ATR/QM requirements as long as the initial term is less than 12 months (with a few other conditions). Also the permanent phase is not exempt and may be a QM if it meets the requirements. My question is would the perm phase qualify for the special fannie/freddie QM if at closing the loan met those agenices requirements but the documents will expire (greater than 120 days) prior to the perm phase becoming effective? If the documents expired (beyond 120 days) before the perm phase of the loan then the loan would no longer be salable to Fannie without updating the documents but we have no intention to sell to Fannie (nor update the documents) and will keep as portfolio. Last edited by BLB; 12/10/13 09:27 PM.
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Ability to Repay/Qualified Mortgage Rule

#1877551 - 12/10/13 09:31 PM Re: Single-closing construction-to-perm BLB
Kathleen O. Blanchard 10K Club Joined: Dec 2000 Posts: 21,293	Single close construction loans came up in the CFPB QM presentation put on by the FRB last week. The response re construction loans, single close and 2 close, was that if the construction/perm loans is disclosed as 2 transactions, the 2nd phase is subject to the ATR rules and the 1st phase is not. If the construction/perm loan is a single close transaction, the presenter wanted to think about it a bit more. He felt it would be problematic. _________________________ Kathleen O. Blanchard, CRCM "Kaybee" HMDA/CRA Training/Consulting/Mapping The HMDA Academy www.kaybeescomplianceinsights.com
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#1877634 - 12/11/13 01:54 PM Re: Single-closing construction-to-perm Kathleen O. Blanchard
Indy Banker Platinum Poster Joined: Aug 2010 Posts: 528	Originally Posted By: Kathleen B Single close construction loans came up in the CFPB QM presentation put on by the FRB last week. The response re construction loans, single close and 2 close, was that if the construction/perm loans is disclosed as 2 transactions, the 2nd phase is subject to the ATR rules and the 1st phase is not. If the construction/perm loan is a single close transaction, the presenter wanted to think about it a bit more. He felt it would be problematic. Awesome. Meanwhile the compliance countdown clock keeps on ticking...
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#1877640 - 12/11/13 02:25 PM Re: Single-closing construction-to-perm BLB
Kathleen O. Blanchard 10K Club Joined: Dec 2000 Posts: 21,293	Yes it does. _________________________ Kathleen O. Blanchard, CRCM "Kaybee" HMDA/CRA Training/Consulting/Mapping The HMDA Academy www.kaybeescomplianceinsights.com
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#1877643 - 12/11/13 02:32 PM Re: Single-closing construction-to-perm BLB
#Just Jay 10K Club Joined: Oct 2006 Posts: 14,390 Cheeseheadland	So we do a single close construction perm loan that is 369 months consisting of 9 months IO then converts upon completion of construction to 360 month PI. Thoughts that the overall term may push us out of QM? I understand that an exception has been made for such single close construction loans, but is that for the program as a whole, or just the on the IO portion of the loan? _________________________ I don't repeat gossip, so listen closely...
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#1877678 - 12/11/13 03:52 PM Re: Single-closing construction-to-perm #Just Jay
BLB 100 Club Joined: Jan 2006 Posts: 111	My reading and understanding is that the construction phase and the perm phase can be treated as two different transactions and as long as the perm phase meets the QM requirements you will be OK. If the perm phase term does not exceed 30 yrs you will be OK on that issue.
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#1879962 - 12/18/13 06:52 PM Re: Single-closing construction-to-perm BLB
A Lewis New Poster Joined: Sep 2005 Posts: 14	As I read this...does this mean that for a single close you calculate the APR (according to REG Z, Appendix D), then calcuate the points and fees under the new rules and if it's a High cost loan, you don't have to do any special with the construction phase, but the perm phase must comply with all of the requirements of a high cost loan? Paragraph 32(a)(2)(ii). "...When the creditor discloses the two phases as a single transaction, a single annual percentage rate, reflecting the appropriate charges from both phases, must be calculated for the transaction in accordance with § 1026.32(a)(3) and appendix D to part 1026. This annual percentage rate must be compared to the average prime offer rate for a transaction that is comparable to the permanent financing to determine coverage under § 1026.32. Likewise, a single amount of points and fees, also reflecting the appropriate charges from both phases of the transaction, must be calculated and compared with the total loan amount to determine coverage under § 1026.32. If the transaction is determined to be a high-cost mortgage, only the permanent phase is subject to the requirements of §§ 1026.32 and 1026.34..."
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#1880007 - 12/18/13 07:51 PM Re: Single-closing construction-to-perm BLB
rlcarey 10K Club Joined: Jul 2001 Posts: 83,364 Galveston, TX	That pretty much sums it up. _________________________ The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#1916841 - 04/23/14 05:07 PM Re: Single-closing construction-to-perm Kathleen O. Blanchard
Deena Power Poster Joined: Nov 2000 Posts: 2,701 PA	Originally Posted By: Kathleen B Single close construction loans came up in the CFPB QM presentation put on by the FRB last week. The response re construction loans, single close and 2 close, was that if the construction/perm loans is disclosed as 2 transactions, the 2nd phase is subject to the ATR rules and the 1st phase is not. If the construction/perm loan is a single close transaction, the presenter wanted to think about it a bit more. He felt it would be problematic. Has anyone seen any further clarification on this? We're struggling with construction/perm combined disclosure with single close. _________________________ Opinions expressed are mine and not necessarily those of my employer.
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#1918103 - 04/28/14 05:20 PM Re: Single-closing construction-to-perm BLB
trout22 Gold Star Joined: Nov 2004 Posts: 313	The ABA Q&A w/ CFPB presentation last week also made mention to this topic. My takeaway was that the 'clean' way is to just split it into two transactions but seeing as the single-closing saves the borrower money we know that won't be a consumer preference. CFPB basically said that if you can document it and everything was 'appropriate' that it could be in compliance with good P&P. I would still think these could be very problematic... even with that 'unofficial guidance' you're talking about treading in some dangerous waters depending on how your regulators interpret and assuming you can get lenders to include enough documentation to adequately support the file every single time.
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#1939774 - 07/11/14 02:50 PM Re: Single-closing construction-to-perm Deena
CalifDreamin Diamond Poster Joined: Mar 2002 Posts: 2,264 Far from Calif	Originally Posted By: Deena Originally Posted By: Kathleen B Single close construction loans came up in the CFPB QM presentation put on by the FRB last week. The response re construction loans, single close and 2 close, was that if the construction/perm loans is disclosed as 2 transactions, the 2nd phase is subject to the ATR rules and the 1st phase is not. If the construction/perm loan is a single close transaction, the presenter wanted to think about it a bit more. He felt it would be problematic. Has anyone seen any further clarification on this? We're struggling with construction/perm combined disclosure with single close. Just wondering if there's any update to this as our bank is considering moving to one time closings for in-house. Curious as to what the biggest concerns/issues are with the disclosures as well as the new rules. Here are some of the initial thoughts I've had, but I'm concerned I'm over-simplifying: 1. HPML: You use that combined APR calculated per Appendix D on the closing TIL to compare to the APOR. 2. Fees disclosed would be the combined fees of the construction and perm – totals. 3. Calculate points and fees to determine if the loan is high cost based on those (and APR) for whole transaction, but if it is high cost, the rules for high cost only apply to the perm phase. 4. Maximum loan term can be 372 months (12 mo construction, 30 year perm) without violating QM – key is for the construction phase to be 12 months or less and the perm phase to be no more than 30 years. 5. In calculating ATR on a construct/perm one-time close that is also an ARM – we’d be using the fully indexed rate in the perm phase, right? But for QM, we’d be going by the maximum interest rate during the first 5 yrs after the date on which the first regular periodic payment will be due in the perm phase – and assume it’s increasing as rapidly as possible, right? 6. Escrow doesn’t begin until the perm phase. 7. On the GFE, where you disclose the initial monthly amount owed for P, I and MI, that is that first payment when the loan goes to perm. Additional questions I have: 1. What if there are cost-overruns? 2. What if construction takes longer than originally anticipated? (I've read some say, it doesn't matter - it rolls to perm at whatever point it was set in the original docs.) _________________________ The opinions expressed are mine and do not necessarily reflect those of my employer _._._._._._. A.S.A.P. Always Say A Prayer <><
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#1939925 - 07/11/14 05:39 PM Re: Single-closing construction-to-perm BLB
John Burnett 10K Club Joined: Oct 2000 Posts: 40,086 Cape Cod	As to your item 1, you have the option, even if you do a one-closing loan, to disclose the construction and permanent phases of the loan separately. If you disclose them separately, you use the APR for the permanent phase to determine whether you've triggered HPML status, by comparing that APR with the APOR for a similar loan term (the term of the permanent financing phase). That may help you avoid HPML status for some of these loans, because the APR on the permanent phase by itself is probably lower than the APR for a disclosure covering both phases. _________________________ John S. Burnett BankersOnline.com Fighting for Compliance since 1976 Bankers' Threads User #8
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#2091595 - 08/04/16 04:30 PM Re: Single-closing construction-to-perm CalifDreamin
CalifDreamin Diamond Poster Joined: Mar 2002 Posts: 2,264 Far from Calif	Originally Posted By CalifDreamin Originally Posted By Deena Originally Posted By Kathleen B Single close construction loans came up in the CFPB QM presentation put on by the FRB last week. The response re construction loans, single close and 2 close, was that if the construction/perm loans is disclosed as 2 transactions, the 2nd phase is subject to the ATR rules and the 1st phase is not. If the construction/perm loan is a single close transaction, the presenter wanted to think about it a bit more. He felt it would be problematic. Has anyone seen any further clarification on this? We're struggling with construction/perm combined disclosure with single close. Just wondering if there's any update to this as our bank is considering moving to one time closings for in-house. Curious as to what the biggest concerns/issues are with the disclosures as well as the new rules. Here are some of the initial thoughts I've had, but I'm concerned I'm over-simplifying: 1. HPML: You use that combined APR calculated per Appendix D on the closing TIL to compare to the APOR. 2. Fees disclosed would be the combined fees of the construction and perm ï¿½ totals. 3. Calculate points and fees to determine if the loan is high cost based on those (and APR) for whole transaction, but if it is high cost, the rules for high cost only apply to the perm phase. 4. Maximum loan term can be 372 months (12 mo construction, 30 year perm) without violating QM ï¿½ key is for the construction phase to be 12 months or less and the perm phase to be no more than 30 years. 5. In calculating ATR on a construct/perm one-time close that is also an ARM ï¿½ weï¿½d be using the fully indexed rate in the perm phase, right? But for QM, weï¿½d be going by the maximum interest rate during the first 5 yrs after the date on which the first regular periodic payment will be due in the perm phase ï¿½ and assume itï¿½s increasing as rapidly as possible, right? 6. Escrow doesnï¿½t begin until the perm phase. 7. On the GFE, where you disclose the initial monthly amount owed for P, I and MI, that is that first payment when the loan goes to perm. Additional questions I have: 1. What if there are cost-overruns? 2. What if construction takes longer than originally anticipated? (I've read some say, it doesn't matter - it rolls to perm at whatever point it was set in the original docs.) Revisiting these questions/statements (item 1 was if you were doing a combined disclosure as opposed to 2) Last edited by CalifDreamin; 08/04/16 04:34 PM. Reason: trying to quote previous post _________________________ The opinions expressed are mine and do not necessarily reflect those of my employer _._._._._._. A.S.A.P. Always Say A Prayer <><
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#2091597 - 08/04/16 04:32 PM Re: Single-closing construction-to-perm BLB
rlcarey 10K Club Joined: Jul 2001 Posts: 83,364 Galveston, TX	Huh? _________________________ The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2091599 - 08/04/16 04:35 PM Re: Single-closing construction-to-perm rlcarey
CalifDreamin Diamond Poster Joined: Mar 2002 Posts: 2,264 Far from Calif	Sorry - I was having trouble getting the quote to be in the post. _________________________ The opinions expressed are mine and do not necessarily reflect those of my employer _._._._._._. A.S.A.P. Always Say A Prayer <><
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#2118735 - 02/17/17 06:02 PM Re: Single-closing construction-to-perm BLB
Hunker Junior Member Joined: Mar 2010 Posts: 26	Is it possible to do a construction only loan for nine months, and when the home is complete, refinance the loan though a modification agreement with the permanent terms versus a fully doc'd refi? I understand the we would have to evaluate ATR, obtain underwriting documentation and provide new TILA disclosure at the time of the modification, but we could eliminate the need for a second closing by the settlement company. We would not set the rate and final terms until the home is complete and not charge any fees for the modification.
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