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#2105068 - 10/28/16 02:33 PM Two Close Construction and Perm Loan Estimate
Banker30 Offline
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My question is about preparing Loan Estimates for a construction loan and then preparing the Loan Estimate for a possible permanent financing. We make permanent loans and the customer has not indicated that they will finance elsewhere. Do we prepare the permanent financing Loan Estimate using dollar amounts for an appraisal / title insurance etc. as if it were for any other customer who requested permanent financing OR do we prepare the Loan Estimate using amounts specific to the loan transaction - zero for the appraisal since the final appraisal from the construction loan will be used - title search or opinion fees instead of title policy fees, etc.? It used to be that you generalized the estimate. I'm basing my question on the proposed comment that you allocate to the construction loan the fees that belong on the construction loan and allocate to the permanent loan the fees required for the permanent loan. If we generalize we are over-disclosing.Any ideas?

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TRID - TILA/RESPA Integrated Disclosures Rule
#2105149 - 10/28/16 06:48 PM Re: Two Close Construction and Perm Loan Estimate Banker30
Docs Offline
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It seems to me that a "generalized" disclosure that does not reflect the actual terms of the transaction that the lender is aware of would not be in good faith and would not comply with the TRID rule.

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#2105199 - 10/28/16 08:43 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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I agree with Docs. Make the Construction LE specific to that phase of the loan. If you know the appraisal will be with the Perm phase, then do not put it on the Construction LE. Similarly, if you have construction related fees, you don't likely need to disclose those on the Perm LE.

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#2105230 - 10/31/16 12:48 PM Re: Two Close Construction and Perm Loan Estimate Banker30
RR Joker Offline
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Banker 30, we only disclose what would actually be charged on the perm phase of a two phase. Most charges will show up on the construction phase, as expected. If we know we are going to make the perm...we generally even go ahead and collect our state-specific mortgage fee and intangibles at that time.
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#2105839 - 11/03/16 03:08 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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Thanks to all for your help.

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#2110584 - 12/13/16 05:33 PM Re: Two Close Construction and Perm Loan Estimate Banker30
Jenny Offline
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We plan on doing two closings for the construction and permanent loan. We will not be paying off the construction loan but will do a modification to the construction note and deed when the construction is complete to convert it into perm financing. We will issue the LE for the permanent phase at the same time we issue the LE for the construction phase. My question is, what is the loan purpose that we put on the LE for the perm phase? Equity?

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#2110586 - 12/13/16 05:42 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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Refinance.
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#2110587 - 12/13/16 05:43 PM Re: Two Close Construction and Perm Loan Estimate RR Joker
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Originally Posted By RR Joker
Banker 30, we only disclose what would actually be charged on the perm phase of a two phase. Most charges will show up on the construction phase, as expected. If we know we are going to make the perm...we generally even go ahead and collect our state-specific mortgage fee and intangibles at that time.


That is not going fly (collection of fees associated with the permanent loan) when the proposed amendments to TRID go into place.
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#2110620 - 12/13/16 07:21 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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On the LE and CloD for the construction phase you should only include costs that would not be charged BUT FOR the construction phase. In other words, all costs that would be on the permanent loan if you were not doing the construction loan stay on the permanent loan. Only the costs triggered by the construction loan are disclosed on the LE and Clod for the the construction loan.
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#2110636 - 12/13/16 08:08 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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And...............The reason being is that some banks were front loading their construction loans to avoid HPML and HCML regulations on the permanent phase.
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#2110668 - 12/13/16 09:15 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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Jenny - Sounds like you're not really doing two closings. If going to the perm is only through a modification, then that is not really a "closing." This is the way we did Construction-Perm at my previous company. However, TRID does allow you to use two sets of disclosures (LE & CD x2) even when you don't officially have two actual closings. That seems to be the easier way to do it, actually. You'll probably have a variety of revised LEs with the Perm Phase though. Under this method of dual disclosure, in essence the modification is the same as paying off the As RL noted, it is a Refinance because you are in essence paying off the Construction loan no matter what. Per the Jack's Compliance Resource training I took, the Permanent Phase will always be "Refinance" if you are doing a separate set of disclosures for each phase, while the Construction phase may be "Purchase," "Construction," or "Refinance" depending on the situation.

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#2110673 - 12/13/16 09:24 PM Re: Two Close Construction and Perm Loan Estimate Compliance NABW
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Originally Posted By Justin C.
If going to the perm is only through a modification,



Technically, depending on how the construction and permanent loan are structured, a modification might not even be a refinancing under 1026.20 and would not even require disclosures.

With that said, I think the regulators will look at that as a method to avoid disclosures on the long term permanent loan and flip out the UDAAP card. I really have never liked this process. I commented on this process in my letter to the CFPB on the proposed TRID amendments. Unless this process significantly saves the borrower money, I'm not too sure why banks continue to engage in the process of modifying the construction loan into a permanent loan.
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#2110691 - 12/13/16 10:07 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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I would agree that of itself it is not likely a refinancing, but because you are doing the dual disclosure method off of what is actually a single close transaction, that is how the disclosure piece plays out under TRID.

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#2110699 - 12/13/16 10:43 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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But it is not a single close transaction. A single close transaction requires a legal obligation that encompasses both the construction phase and the permanent phase.
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#2110709 - 12/13/16 11:43 PM Re: Two Close Construction and Perm Loan Estimate rlcarey
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It does get confusing this way. We use to payoff the construction loan with a new note, but the Lender is wanting to save the borrower money. Perhaps we should look into a true one-close construction-to perm loan with our software system. I really do not know which is the best way so I appreciate everyone's feed back. Thank you.

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#2110785 - 12/14/16 06:07 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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That's how our modification program was set up. Perhaps Jenny's is different. We did a single close transaction that encompassed both phases, but about 70% of the time something happened so that the initial legal obligation needed to be changed (borrower didn't use expected amount of funds, delay in construction, etc.). This is where the modifications would come into play.

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#2110834 - 12/14/16 08:58 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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Justin,

I believe Jenny is referring to a situation that is common in some areas (Texas is one of them). They close the construction loan with a note that only addresses the construction phase then, when the construction phase is completed, they modify that note into a permanent loan.
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#2110850 - 12/14/16 09:19 PM Re: Two Close Construction and Perm Loan Estimate rlcarey
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Originally Posted By rlcarey
Originally Posted By RR Joker
Banker 30, we only disclose what would actually be charged on the perm phase of a two phase. Most charges will show up on the construction phase, as expected. If we know we are going to make the perm...we generally even go ahead and collect our state-specific mortgage fee and intangibles at that time.


That is not going fly (collection of fees associated with the permanent loan) when the proposed amendments to TRID go into place.


Actually, it does fly...or I know of no reason it doesn't fly. We can and are supposed to collect our state-specific mortgage fee IF we intend to make the permanent loan and the intangibles CAN be collected at time of first deed OR when the term exceeds 35 months. So in the case I described...yes, it CAN be done at time of the construction phase.
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#2110869 - 12/14/16 09:51 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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RR - I'll leave that between you and your legal counsel regarding the determination of whether this is required by law or just that you can or it is custom. All I can say is that the CFPB has proposed that on the LE and CD for the construction phase you can only include costs that would not be charged but for the construction phase. You cannot include fees/charges that are associated with the permanent phase of the loan on the construction loan disclosures.

You may be correct, as all State laws may differ.
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#2111005 - 12/15/16 06:38 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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That's precisely what I meant. It generally ties to whether or not we will be making the permanent loan on the state fee, but for Intangibles, it is an either/or OR mandatory based on term. IOW, it depends on the full picture of intent. Not at all a one size fits all.
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#2167060 - 03/07/18 06:55 PM Re: Two Close Construction and Perm Loan Estimate Banker30
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Kind of a related question that I figured might be a good place to discuss. I think this may have been discussed before, but I am unable to find the thread. I understand that some lenders charge a fee for not doing the perm loan with them when they did the initial construction loan. I guess this would just be dealt with in a contractual agreement somehow as a release fee or the like? I wouldn't see how it could be disclosed on the LE/CD for the construction loan, as it is a subsequent event dependent on a may or may not do, correct?

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#2167070 - 03/07/18 07:12 PM Re: Two Close Construction and Perm Loan Estimate Banker30
Dan Persfull Offline
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We charge such a penalty.

1. Make sure the fee is allowable under state law.
2. Have your attorney draw up the legal document to contract for the fee. Ours is an addendum to the construction note.
3. The fee is disclosed in our processing agreement.
4. The fee is not disclosed on the LE.
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#2167086 - 03/07/18 07:58 PM Re: Two Close Construction and Perm Loan Estimate Dan Persfull
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Thank you, Dan!

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