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#2159128 - 01/03/18 11:41 PM APRWIN and construction/perm loans
Julia_D Offline
New Poster
Joined: Feb 2016
Posts: 2
Hi experts,

I did a search but didn't find an answer to my specific question so I'm hoping you all can shed some light. I'm verifying APRs on construction/perm loans. We opted to forgo Appendix D and use the regular method for calculating the APR. If I input my payment stream using an interest only payment based on half the loan amount during the construction period and the fully amortized payment for the rest of the term, the APRs come out fine. My question is whether that's a valid approach? It seems to me that if we're not using appendix D then the interest only payments should be based on the entire loan commitment - not half.

I get violations if I try to use the construction loan methods (appendix D). Thoughts?

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#2159131 - 01/04/18 02:08 AM Re: APRWIN and construction/perm loans Julia_D
Richard Insley Offline
10K Club
Richard Insley
Joined: Oct 2000
Posts: 10,056
Toano, VA
Welcome to BOL, Julia. You're certainly diving into the deep end of the pool with this question! We discuss it from time to time, but it's no surprise that you couldn't find one of those threads.

This will get you started:
1. Click the "Search" link above.
2. Enter "utilization" in the "Keyword Search Terms" field.
3. Enter "Richard Insley" in the "Display Name Search" field.
4. Set the "Date Range" to 5 years and submit the search form.

When I ran this search, it kicked out 14 posts from 10 threads. Some of these posts might have links to older (>5 years) threads. The substance of this part of Reg. Z has undergone little or no change since 1981, so anything you find should be current.

Very quickly, you should see that the entire concept for calculating the disclosures (or verifying them) rests on Sections 1026.17(c)(1), (2), and (6). These sections set the broad standards for estimating TIL disclosures for construction and construction/perm loans. Appendix D is provided as an optional tool.

Whether or not you use Appendix D, you are bound by the general principle that all calculations and disclosures must reflect the terms and conditions stated in the contract documents. What do your construction notes say about advances and the accrual of interest? Do you schedule the dates and amounts of draws, or are they based on progress of the construction? Regardless of the percentage of funds in use, what do your notes say about the method for calculating interest: based on the full loan commitment, or (most likely) based on the funds outstanding?
...gone fishing.

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#2159150 - 01/04/18 02:07 PM Re: APRWIN and construction/perm loans Richard Insley
Julia_D Offline
New Poster
Joined: Feb 2016
Posts: 2
Thank you, Richard!

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