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#2094883 - 08/23/16 10:32 PM Construction loans and delayed settlement
BrendaW Offline
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Texas
I guess we have been confused about the delayed settlement disclosure for construction loans and need some clarification.

1026.37(m) (8) Construction loans. In transactions involving new construction, where the creditor reasonably expects that settlement will occur more than 60 days after the provision of the loan estimate, at the creditor's option, a clear and conspicuous statement that the creditor may issue a revised disclosure any time prior to 60 days before consummation, pursuant to § 1026.19(e)(3)(iv)(F).

The delayed settlement disclosure would only be added to the initial LE IF the anticipated closing date of the new construction loan only is anticipated to close more than 60 days from the date the initial LE was provided. Is this correct?

This is not how we understood this as we only do the construction loan and if the customer wants to do the perm with us, a new application is completed and we process that as a separate transaction. So we were inserting the delayed settlement statement into the construction only loan and making sure we provided a "new LE" at least 60 days prior to the consummation of the permanent loan. I am being told that is incorrect and the 60 days is if the construction only loan is anticipated to close more than 60 days from the initial construction only loan LE.

Please help clarify as now I am totally confused on this and it seems to be real simple. I know that we were told differently in some training and now can't get my hands on it.
Last edited by John Burnett; 08/24/16 01:36 PM.
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TRID - TILA/RESPA Integrated Disclosures Rule
#2094891 - 08/24/16 12:12 AM Re: Construction loans and delayed settlement BrendaW
rlcarey Online
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They are talking about a LE that you issue for the permanent loan not the construction loan LE:

19(e)(3)(iv)(F) Delayed settlement date on a construction loan.

1. Requirements. A loan for the purchase of a home that has yet to be constructed, or a loan to purchase a home under construction (i.e., construction is currently underway), is a construction loan to build a home for the purposes of § 1026.19(e)(3)(iv)(F).

" if the customer wants to do the perm with us, a new application is completed and we process that as a separate transaction."

You need to read the CFPB proposal, because you are not going to be able to handle the permanent loan in this manner in the future unless you don't do permanent financing or the consumer directly tells you they are going elsewhere for the permanent loan.
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#2095759 - 08/29/16 04:45 PM Re: Construction loans and delayed settlement rlcarey
BrendaW Offline
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I haven't read all the way thru the proposal yet....where do I need to go to read what you are indicating that we "... are not going to be able to handle the permanent loan in this manner in the future unless you don't do permanent financing or the consumer directly tells you they are going elsewhere for the permanent loan"

I have only read the brief reviews of the proposal at this point.
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#2095767 - 08/29/16 05:07 PM Re: Construction loans and delayed settlement BrendaW
rlcarey Online
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Page 37 & 38 PDF version

http://www.consumerfinance.gov/policy-co...t-regulation-z/


May Be Permanently Financed by the Same Creditor

The Bureau proposes to add new comment 17(c)(6)-6 to clarify the meaning of the “may
be permanently financed by the same creditor” condition specified in § 1026.17(c)(6)(ii) that, if
satisfied, permits a creditor to treat a construction-permanent loan as one transaction or more
than one transaction. Proposed comment 17(c)(6)-6 would explain that a loan to finance the
construction of a dwelling may be permanently financed by the same creditor, within the
meaning of § 1026.17(c)(6)(ii), if the creditor generally makes both construction and permanent
financing available to qualifying consumers, unless a consumer expressly states that the
consumer will not obtain permanent financing from the creditor.
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#2095779 - 08/29/16 05:38 PM Re: Construction loans and delayed settlement BrendaW
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So the consumer's expression of that fact will suffice? Is that a change? I have always thought that absent a takeout letter from another financial institution, the bank had to assume that they "may" do the permanent financing. Thanks.
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#2095780 - 08/29/16 05:40 PM Re: Construction loans and delayed settlement BrendaW
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So the consumer's expression of that fact will suffice? Is that a change? I have always thought that absent a takeout letter from another financial institution, the bank had to assume that they "may" do the permanent financing. Thanks.
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#2095785 - 08/29/16 05:44 PM Re: Construction loans and delayed settlement BrendaW
rlcarey Online
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That was the assumption under the old RESPA rules and it looks like basically the CFPB is taking the same stance. The only "expression" that I would accept from the consumer would be a takeout agreement..
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#2095788 - 08/29/16 05:47 PM Re: Construction loans and delayed settlement BrendaW
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Ok, the language "unless a consumer expressly states that the consumer will not obtain permanent financing from the creditor" sort of sounded to me like the CFPB was saying you could take their word for it, without a takeout letter.
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#2095791 - 08/29/16 05:50 PM Re: Construction loans and delayed settlement BrendaW
rlcarey Online
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Yup - uh huh.

Until the borrower sues you and says they never told you that and you ended up doing the permanent loan.
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#2095792 - 08/29/16 05:51 PM Re: Construction loans and delayed settlement BrendaW
raitchjay Offline
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I'm not saying it's a good idea.....i'm wondering why they worded it that way.
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#2095894 - 08/29/16 09:35 PM Re: Construction loans and delayed settlement raitchjay
BrendaW Offline
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Thank you Randy..... I looked that up.... and our management won't be real happy as they have always taken the stance. Sometimes it is hard to get management on the same page....this one, I have started to plant the seed now since you provided the location of that.
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#2113652 - 01/10/17 04:55 PM Re: Construction loans and delayed settlement BrendaW
iheartcompliance Offline
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Please help me with further clarification on this one...

We currently disclose the construction only phase with the construction loan application.
If the borrower indicates that they would like for us to do the permanent phase, they re-apply and we disclose the permanent phase at that point. I read the proposal, but am still confused.

How exactly/when are we going to be required to issue both phases of disclosures going forward....based on the proposal?

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#2113655 - 01/10/17 05:01 PM Re: Construction loans and delayed settlement BrendaW
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As far as I've known...it's been that way for years sans an actual takeout for permanent financing at another LI. It sounds to me like the Bureau just intends on explaining that little nugget a little bit better.
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#2113663 - 01/10/17 05:30 PM Re: Construction loans and delayed settlement BrendaW
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"As far as I've known...it's been that way for years "

I am sorry, but we are new to consumer lending. What exactly has been that way for years?

Should we provide both disclosures for the construction and permanent upfront, assuming that we will do the permanent phase too? Should we not be getting two separate applications?

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#2113669 - 01/10/17 06:01 PM Re: Construction loans and delayed settlement BrendaW
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We use the one application for both phases. If the construction borrower does not have permanent financing in place, then we have to assume we 'may' make the permanent loan and therefore, owe disclosures to them for a potential permanent take out. 99.9% of our construction loans come with double disclosures as most of our customers end up with end financing balloon loans with us as well.

It goes back to this definition within RESPA, Reg X

(3) Temporary financing. Temporary financing, such as a construction loan. The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4-family residential structures for sale or lease), is subject to this part if its term is for two years or more. A “bridge loan” or “swing loan” in which a lender takes a security interest in otherwise covered 1- to 4-family residential property is not covered by RESPA and this part.

The definition has to be thought of kind of in reverse. If you were not financing the lot AND you know you were not financing the permanent...you would not give disclosure for the construction phase to begin with. Of course with TRID, that part changed smile
Last edited by RR Joker; 01/10/17 06:03 PM. Reason: somehow lost some words in the cut/paste!
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#2113706 - 01/10/17 07:30 PM Re: Construction loans and delayed settlement BrendaW
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Thank you. I know these are probably elementary questions, but it's new to us.

To make sure that I understand correctly, because we have obviously been doing it incorrectly (sigh):
1. We obtain one application for both phases
2. Issue two simultaneous Loan Estimates; one for construction, one for permanent
3. When it is time to close the construction portion, we issue a CD for both phases or just the construction?

I am confused because we do two separate loans.

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#2113709 - 01/10/17 07:37 PM Re: Construction loans and delayed settlement BrendaW
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1. yes
2; yes
3: No. You won't issue a CD on the permanent phase until it happens IF it happens

We also do two separate loans. I have quite a few 'phase 2' files sitting in my pending file at the moment

smile
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#2113711 - 01/10/17 07:39 PM Re: Construction loans and delayed settlement BrendaW
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To add: This is why the '60 day' notice is so important. That second loan can sit for months before you are ready to complete it. It gives you a 'very strange' opportunity to adjust fees, if needed. I say strange, because it's a little funny how you would know for certain it won't close for at least 60 more days before your window of opportunity closes crazy
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#2113714 - 01/10/17 07:50 PM Re: Construction loans and delayed settlement BrendaW
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I really appreciate your help and hope that someone else can benefit from my elementary questions.

We need to ensure that that the 60 day notice is on the permanent phase of the LE, right? I want to be certain and hopefully get these right....eventually.

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#2113716 - 01/10/17 07:55 PM Re: Construction loans and delayed settlement BrendaW
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Yes.
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#2113836 - 01/11/17 04:20 PM Re: Construction loans and delayed settlement BrendaW
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RR Joker,

Are you calling the new loan for the permanent financing of the construction phase a refinance?

Construction (1 year of interest only payments on the portion advanced-fixed rate, due in full at the end of the term)

Loan Term: 1 year
Purpose: Construction
Product: 1 Year lnterest Only, Fixed Rate

Permanent (30 years fixed rate monthly pay)

Loan Term: 30 year
Purpose: Refinance
Product: Fixed Rate

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#2113845 - 01/11/17 04:48 PM Re: Construction loans and delayed settlement BrendaW
Dan Persfull Offline
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For the TRID purpose the permanent financing that pays off a construction loan would be a refinance.
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#2117330 - 02/07/17 08:03 PM Re: Construction loans and delayed settlement RR Joker
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RR Joker,

Since you do two loans, are you sending out two sets of all required regulatory disclosures? Also, do you send two different Intent to Proceed documents (I know that this is not a requirement, we just do it). It seems that you will need documents specific to each loan.

What about approval for the loans? Do you send two separate commitments or approvals? I know that we have 30 days to provide an answer to the applicants. Two loans is confusing me for some reason, but we want to do it right.

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#2117705 - 02/09/17 06:59 PM Re: Construction loans and delayed settlement BrendaW
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We send two complete sets of disclosures simultaneously.

We do not mail intent to proceed documents. We personally receive intent and document that on an "Intent" form when the customer gives the go-ahead.

We do not send approval status out to customers. Typically, that's all handled during verbal communications. There are unknowns on that final loan as you can't verifiy employment for ATR purposes until you are close to closing, so those loans, although approved, are more likely a type of 'conditional approval' that early on.
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#2131409 - 05/22/17 09:03 PM Re: Construction loans and delayed settlement BrendaW
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Is the 60 days notice something others are including on the LE? I'm trying to read up on it as we clean up our construction procedures here and I found other convos in this forum citing 1026.37(m)(8) but there is no section 8!

We don't currently have that verbiage on our disclosures...

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