I have knowledge of a company that is offering/disclosing a 12-month interest only TRID short-term construction loan, no long-term commitment. Disclosures are based on Appendix D. At the end of the 12 month period, they are completing a note modification and terming it out for a long-term fixed rate loan. They do not send TRID disclosures for the fixed rate loan since it is not considered a refinance under TILA. They do not extinguish the original note and treat it as a modification. They review the initial construction loan for ATR with an estimated fixed rate term loan for the analysis (not the interest only) but don't go back and review at the end of the construction loan since it is not required for a modification. I have heartburn about just a drastic change in loan structure for the customer without disclosing/reviewing anything but am I overthinking it? Is this an acceptable practice under the regs?

It is an acceptable practice under the 1026.20(a). The FRB had a proposal out to close that loophole before the CFPB took over Regulation Z and there has not been a peep since. I have never heard of a bank being criticized for it, even though it leaves you with the feeling like a dog with peanut butter stuck to the roof of his mouth. Some banks choose to disclose anyway, just to avoid any UDAAP appearances.

thank you.