We have a single close construction to perm loan and am hoping for clarification on the term of the loan in calculating for HPML purposes. If we have a 20 year fixed rate loan with an 8 month construction period (that is in addition to the 20 years), do we use 21 years for the term?

We do use 21 years for HMDA purposes as the rules make it clear that is what you do. However, I cannot find the same clarity with the Reg Z rules.

A side note, our Note is produced with a Construction Addendum. The Construction Addendum covers the 8 months of construction and then the Note essentially takes over after the construction is over. Our LOS is not pulling in the construction period into the Rate Spread (for HMDA) nor the HPML calculation.

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 § 1026.22(a)(1) 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 the transaction is a higher-priced mortgage loan under § 1026.35(a).

OK. Thank you for providing that. I missed that in the Commentary.

There can be some real advantages to disclosing these loans as two transactions, since the burden of the construction-term loan finance charge and APR doesn't affect the APR for the perm phase, and the latter is used to determine the spread over the APOR.