I am reviewing elements of the QM rule change and have a different opinion to that of a vendor. The question is this:

For a 30 year fixed construction to permanent loan (closed as one transaction, with one set of disclosures), with a 12 month construction phase, are any construction specific fees, e.g. construction inspection fee, that would be ordinarily included in the pre-paid finance charge and APR, excluded from the QMAPR calculation?

The only avenue I can see to exclude the fees would be to apply the exemption at 1026.43(a)(3)(iii) - maybe my disconnect is around the disclosed APR and the QMAPR calculation, but would like to get other opinions on this.

Thanks

Not unless you are delivering separate disclosures for the construction and permanent phase.

Thanks Randy, so if I am reading your response correctly, if we are delivering one set of disclosures for the CTP, then we should have QMAPR calculation that mirrors what the disclosed APR is and any construction specific fees would need to be included in the QMAPR calculation?

If you treat it and disclose it as all one transaction, I am not sure how you can make an argument for breaking it out.

Neither do I, but a vendor is making that argument and the only way I could see to support it is if you take the exemption at 1026.43(a)(3) (iii) as it applies to paragraphs (c) through (f) of 1026.43

This QM change has been a PITN

Anyone else encountered this or am I an outlier here?

I think the vendor needs to go back to the basics found in the original commentary. The basics of the addition of that commentary was the ability to treat the construction loan separately in order for the loan to still be able to be qualified as a QM due to the interest only period and the fact that the loan term may exceed 30 years. There is no where in the regulation that indicates that you can disclose the loan on a combined LE/CD and then separate out the points and fees and recalculate the APR for the other QM tests.

3(a)(3)(iii)
The Bureau also received comments requesting clarification on how the temporary financing exemption would apply to construction-to-permanent loans, i.e., construction financing that will be permanently financed by the same creditor. Typically, such loans have a short construction period, during which payments are made of interest only, followed by a fully amortizing permanent period, often an additional 30 years. Because of this hybrid form, the loans do not appear to qualify for the temporary financing exemption, nor would they be qualified mortgages because of the interest-only period and the fact that the entire loan term will often slightly exceed 30 years.

Take points and fees for example. 1026.43 directs you 1026.32 for the calculation of point and fees. Also, the new .43(e)(2)(vi) directs you to .32 for APR calculation

Paragraph 32(a)(2)(ii).
1. Construction-permanent loans.

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 § 1026.32(a)(3) 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 coverage under § 1026.32. Likewise, a single amount of points and fees, also reflecting the appropriate charges from both phases of the transaction, must be calculated and compared with the total loan amount to determine coverage under § 1026.32. If the transaction is determined to be a high-cost mortgage, only the permanent phase is subject to the requirements of §§ 1026.32 and 1026.34.