Our bank has a Mortgage Department which sells their loans on the secondary market. They may approve permanent financing and issue all TRID early disclosures for a loan, while on the bank side, we finance the interim construction of the home. During the construction period, the consumer may decide to do their permanent financing elsewhere for whatever reason. The question has been asked to me if we are allowed to assess a fee at payoff of the interim construction loan when a consumer has decided to take their permanent loan elsewhere after initially being approved by our mortgage department and having provided ‘intent to proceed’. If we are allowed to assess this fee, how and when during the interim financing stage do we disclose this to the borrower and attain their acknowledgment of the possible fee at payoff should they decide to do their permanent financing elsewhere?

Any insight from the compliance side or Texas laws as to how this is allowable or not is greatly appreciated.

When? It would have to be built into your construction loan agreement and agreed to at the time the construction loan is made. It sounds little draconian to me. Whether this fee could possibly create a usury situation is a complex question. You need to sit down with your legal counsel. I am not sure what the Mortgage Department is trying to accomplish here. Either the customer applied for a permanent loan or they did not. Once approved, them going elsewhere would be highly unusual. If customers are going elsewhere, then it says your products are not competitive. Also, the bank should have already collected the majority of the costs to make the permanent loan when making the construction loan.

Thanks Randy!