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#633283 - 11/02/06 04:13 PM Citation for Are Earlies Required response
SuperBanker Offline
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Yesterday, I asked a question about whether or not earlies were needed for a construction loan in which all proceeds were used for construction purposes and in which a permanent commitment from our mortgage department was in file. Dan Persfull answered with an affirmative. Could anyone tell me the citation in the law where this answer is found?

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#633284 - 11/02/06 04:18 PM Re: Citation for Are Earlies Required response
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Try 3500.5 and 3500.7 in HUD's Regulation X, RESPA.

Pay specific attention to the following:

The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part.

The ETIL requirement will be found in 226.19(a).
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#633285 - 11/02/06 04:23 PM Re: Citation for Are Earlies Required response
RR Joker Offline
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The affirmative answer you received would actually depend on if title transfered (lot purchase) with the proceeds for the construction. If that the case, it's not treated the same way as simple construction, (see 3500.5(b)(3) which would exempt based on temp financing...it's treated like a purchase, due to the lot purchase. It's not real clear, but your best bet is the definition of federally related mortgage loan found in 3500.2. Again, you have to "read between the lines" because just reading it will lead you to believe construction loans are exempt. Unfortunately, HUD regs have no commentary to clear these things up...;)

I also assume when you say a permanent commitment from your mortgage dept that they are a secondary market lender and NOT booking in-house...if my assumption is wrong, then you would actually have 2 sets or earlies...one for the construction and one for the end-financing in house.
Last edited by joker; 11/02/06 04:29 PM.
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#633286 - 11/02/06 04:29 PM Re: Citation for Are Earlies Required response
Dan Persfull Offline
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Bloomington, IN
Joker pay specific attention to the following statement from SuperBanker:

were needed for a construction loan in which all proceeds were used for construction purposes and in which a permanent commitment from our mortgage department

The same financial institution is making both the construction loan and the permanent loan. The transfer of title to the first user has no bearing in the transaction.
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#633287 - 11/02/06 04:31 PM Re: Citation for Are Earlies Required response
RR Joker Offline
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sorry Dan, I was trying to get the edit function to work while you posted...to clarify that issue...take a look at my "assumption" regarding the bank's mortgage dept and weigh in on that if you like. We would treat the situtation totally differently depending on in-house or secondary market.
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#633288 - 11/02/06 04:37 PM Re: Citation for Are Earlies Required response
Dan Persfull Offline
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Bloomington, IN
Joker, if the "mortgage department" is a separate mortgage company or affiliate/subsidiary then I would agree. However, if it is a separate company or affiliate/subsidiary, then it is not a department of the bank and should not be referred to as such.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#633289 - 11/02/06 04:45 PM Re: Citation for Are Earlies Required response
RR Joker Offline
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Dan, we have employees that are secondary market lenders and have their own department. If they issue a commitment it is not from our bank...it is thru TBW, for instance. This is what I am referring to.
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#633290 - 11/02/06 04:57 PM Re: Citation for Are Earlies Required response
Dan Persfull Offline
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Bloomington, IN
We also sell loans on the secondary market to TBW, however we are originating and making the loans. Why do you feel this would exempt the loan transaction?
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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#633291 - 11/02/06 05:21 PM Re: Citation for Are Earlies Required response
SuperBanker Offline
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Gentlemen,

Our mortgage department is part of our bank. The way this situation would work is our mortgage department prepares a loan commitment for permanent financing. This commitment is styled with the name of our bank at the top. Once the home is complete, our mortgage department would close on the loan, it would go into our mortgage receivable, and then it would be sold on the secondary market. Does this change any of your responses?

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#633292 - 11/02/06 05:51 PM Re: Citation for Are Earlies Required response
RR Joker Offline
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RR Joker
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The Swamp
You are saying you close in your name (table-fund) and then sell...ours are setup direct.

SuperBanker, I will side with Dan on your set-up, as that is a table-funded loan in your bank name, sold later.

Therefore, you would disclose the construction and they would disclose the permanent all within 3 days of the initial application date.
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My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

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#633293 - 11/02/06 05:52 PM Re: Citation for Are Earlies Required response
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Based on that clarification SuperBanker you would need to provide the required early disclosures for both the construction loan and the permanent loan within 3 business days of receiving the application. Refer to my cite given above:

if the loan is used as, or may be converted to, permanent financing by the same lender
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#633294 - 11/02/06 06:04 PM Re: Citation for Are Earlies Required response
RR Joker Offline
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RR Joker
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The Swamp
Quote:

You are saying you close in your name (table-fund) and then sell...ours are setup direct.




Does your opinion based on this difference change your opinion on one set or two sets of dislosures, Dan? Obviously SB would need 2 sets. If secondary market is made in secondary lender's name, they would disclose based on a separate application (which I would imagine is in close proximity, but not necessarily the same date as the CL app.)
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My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

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#633295 - 11/02/06 06:24 PM Re: Citation for Are Earlies Required response
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Joker, I'm not sure I understand how you are set up. Who is originating the loan? Is the loan being closed at a closing agent on behalf of TBW, or on behalf of your bank and you are then transferring the loan to TBW? I don't see TBW being the lender, but I guess it would be possible.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#633296 - 11/02/06 07:13 PM Re: Citation for Are Earlies Required response
RR Joker Offline
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RR Joker
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The Swamp
Yes, you can close in the investors name. Let me put this another way that takes that equasion totally out of the situation..and base it on a possible difference in procedures.

Construction Lender takes application on 11-2-06. Loan is subject to permanent takeout. Loan is disclosed based on 11-2 date.

Mortgage Lender takes mortgage application on 11-4-06 (most don't like to use the bank's application for several reasons, mainly they are generally more thorough and pertain only to the permanent phase) They disclose based onthe 11-4 date.

Technically, in this situation, the construction lender would have no idea if the mortgage lender will write a commitment or not, so in absence of lot purchase it could go either way on disclosure. Erring on overdisclosure is a good fit for this situation.

It could also go in reverse with the mortgage lender pre-approving the loan first, then the applicant applying for the construction loan.

Another scenario we have is that the construction lender takes the app for the construction loan...notates in the file that we will make an in-house mortgage if borrower so desires...in this instance...cut and dried, disclose with 2 sets..one for CL and one for perm within 3 days of the initial application.
Last edited by joker; 11/02/06 07:19 PM.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

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#633297 - 11/02/06 07:54 PM Re: Citation for Are Earlies Required response
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Going to have to think about this one for awhile. Totally different set-up than what I'm accustomed to. I'm accustomed to having the construction and permanent loan underwritten at the same time through the mortgage department.

I'm still leaning that you are the lender for both loans, you are simply underwriting it through TBW and/or acting as a broker for TBW.
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The opinions expressed are mine and they are not to be taken as legal advice.

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