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#2139851 - 07/27/17 09:35 PM Construction Loan Min/Max final payment
Bec Offline
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Bec
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Is there anyone out there who may have an explanation for me as to why our LOS would generate a Minimum/Maximum final payment range on a 9 mo interest only, fixed construction loan? One step, no take out.
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TRID - TILA/RESPA Integrated Disclosures Rule
#2139852 - 07/27/17 09:39 PM Re: Construction Loan Min/Max final payment Bec
rlcarey Offline
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Nope.
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#2139865 - 07/27/17 11:43 PM Re: Construction Loan Min/Max final payment Bec
Darth HMDA, CRCM, CAMS Offline
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LOS goblins?
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#2139946 - 07/28/17 03:20 PM Re: Construction Loan Min/Max final payment Bec
RR Joker Offline
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Isn't that one of the issues that's changing with the TRID revisions? To allow for that range of payments? Perhaps your LOS has jumped the gun?? Or has it always done it that way?
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#2139952 - 07/28/17 03:31 PM Re: Construction Loan Min/Max final payment Bec
rlcarey Offline
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Not in the projected payments table. You have to answer Yes for can they increase and insert an AP table - but you disclose the payment amount per Appendix D:

To promote consistency and continuity for construction disclosures in the projected
payments table, comment app. D-7.v.A as adopted in this final rule continues to require the
creditor to determine the amount of the interest-only payment to be made during the construction
phase using the assumption in appendix D, part I.A.1. This means that the interest-only
construction payments are not disclosed as a range of payments in the projected payments table.
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#2139961 - 07/28/17 03:48 PM Re: Construction Loan Min/Max final payment Bec
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Ah...gotcha...I knew it was a topic in there, but had not studied the details.
Last edited by RR Joker; 07/28/17 03:48 PM.
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#2140278 - 07/31/17 10:45 PM Re: Construction Loan Min/Max final payment Bec
Bec Offline
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Thank you for your feedback everyone. LOS goblins for sure.
Seems to be a lot of them lurking around lately!
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#2148727 - 10/04/17 08:28 PM Re: Construction Loan Min/Max final payment Bec
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I see how this works for construction loans as far as estimating interest only payments when it is based on the outstanding amount of interest. Does this also apply to closed-end credit where the interest only payment is based on the outstanding amount and it is not a multiple advance situation? I didn't see it specifically addressed in the Regulation. An example would be a 12-month interest only with monthly payments based on the outstanding balance. Borrower is disbursed the full amount of available credit at consummation and can only pay down principal (not draw up and down), but if principal is paid down, then interest only payment would be based on that smaller outstanding amount. Does the LE/CD show a range of payments or use the one-half of commitment amount? Thank you for your time and assistance.

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#2148730 - 10/04/17 08:56 PM Re: Construction Loan Min/Max final payment Bec
rlcarey Offline
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You make your disclosure based on the legal obligation. There is no legal obligation for the borrower to make any principal payments. Any such potential reduction is ignored.
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#2148732 - 10/04/17 09:09 PM Re: Construction Loan Min/Max final payment Bec
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The legal obligation is interest only based on the outstanding balance. It's not like a home loan where you pay down xyz amount of principal, but your payment amount remains the same. The payment can change.

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#2148739 - 10/04/17 09:26 PM Re: Construction Loan Min/Max final payment Bec
rlcarey Offline
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"An example would be a 12-month interest only with monthly payments based on the outstanding balance."

How does the outstanding balance ever change? If they are paying the outstanding interest only - how does that payment change?

I don't understand where you are going - sorry.
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#2148740 - 10/04/17 09:29 PM Re: Construction Loan Min/Max final payment Bec
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They can pay the balance down and this would result in a corresponding change in the payment amount. Unlike, for instance, with my home loan. I make extra principal payments all the time, but that has no impact on my monthly payment amount.

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#2148744 - 10/04/17 09:43 PM Re: Construction Loan Min/Max final payment Bec
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Paying the balance down is not part of the legal obligation. You do not disclose for "what ifs". Like on your home loan, do you disclose a range for the term of your loan in case you make extra payments and the loan matures early?
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#2148756 - 10/04/17 10:32 PM Re: Construction Loan Min/Max final payment Bec
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Okay, sounds good to me. So, you don't feel like 1026.37(c)(1)(i)(A) applies here because the payments don't actually "change" because it only changes under a "what if?"

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#2148765 - 10/05/17 10:48 AM Re: Construction Loan Min/Max final payment Bec
rlcarey Offline
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Paragraph 37(c)(1)(i)(A).

1. Periodic principal and interest payments. For purposes of ยง 1026.37(c)(1)(i)(A), periodic principal and interest payments may change when the interest rate, applicable interest rate caps, required periodic principal and interest payments, or ranges of such payments may change. Minor payment variations resulting solely from the fact that months have different numbers of days are not changes to periodic principal and interest payments.
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#2148847 - 10/05/17 05:15 PM Re: Construction Loan Min/Max final payment Bec
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The required interest payments "may change" if you take a literal reading of this section because they are based on the outstanding balance during the statement period. It doesn't meet the "minor payments" exemption mentioned at the end.

Not saying I disagree with your conclusion, but if a simple quote of the Regulation was going to provide an answer for me, then I wouldn't have asked. Obviously, I already read the Regulation section because I referenced it.

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#2148853 - 10/05/17 05:33 PM Re: Construction Loan Min/Max final payment Bec
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If that is so, then which change is it that you think requires a range to be disclosed:

1. the interest rate changes- nope
2. applicable interest rate caps changes - nope
3. "required" periodic principal and interest payments, or ranges of such payments may change - nope

Because the legal obligation doesn't include any of these changes in your note, the customer's legal obligation is to make the monthly interest payments based on the original outstanding loan balance which does not involve a range. There is no "literal" reading involved in the regulations.
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#2148861 - 10/05/17 06:05 PM Re: Construction Loan Min/Max final payment Bec
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You make a loan for $100,000, interest only. There is no legal obligation that they must pay down anything to principal periodically, so what Randy has outlined is absolutely accurate based on a closed-end, interest-only loan. The whole fact is, as already stated, sure they 'can' pay down, but there is no requirement nor expectation that they 'must' pay down during the term and you cannot assume that they will.
Last edited by RR Joker; 10/05/17 06:06 PM.
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#2148865 - 10/05/17 06:29 PM Re: Construction Loan Min/Max final payment Bec
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Thank you all. Like I said, I wasn't disagreeing with that conclusion. I was just trying to better understand why this is not considered covered under 1026.37(c)(1)(i)(a). It's because the "required" payment does not change, as it is based on the original issued amount, from what I understand you are saying.

Logically, it's kind of hard to swallow, but I see what you are saying. The way I am looking at it is that the "required" payment is based on a calculation. Said calculation is [outstanding balance * interest rate]. Because the outstanding balance can change, the "required" payment can also change. Thus, the payment may change because "requirement" is inherently based on a calculation that can be variable because of movements in the outstanding balance. However, I guess this way of "looking" at it does not matter for this set of circumstances. Thank you again.

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