APRWIn - APR overstated?

Posted By: CindyS

APRWIn - APR overstated? - 09/12/19 09:53 PM

I'd appreciate some help to make sure I'm not misunderstanding the APR requirements...

I'm doing a TRID audit and not agreeing with one APR disclosed on the CD. The purpose of the Loan in question was for construction. However, it was done as a single advance on day one with monthly interest payments and a balloon payment at maturity.

Loan Amount $20,000
Interest Rate 6%
Monthly Interest only payment - $100 for 11 months
Final payment $20,100.
Disbursement Date 2-21-19
1st payment date 3-21-19
Maturity and final payment date 2-21-2020

Amount financed: $19,834
Disclosed APR: 13.891%
Disclosed Finance Charge: 1,366

When I do APRWin, I get an APR of 6.8612% with a violation of APR overstated by 7.0298.

When we questioned the software/forms company, they responded back that the original disclosed APR is correct and they included screenshots of APRWin using the Construction Loan option.

I am doing APRWin using the Regular APR method because I believe that is what's required when you have a single advance.

I'd appreciate if someone could let me know if I'm thinking about this correctly or not. If it is overstated, what's the corrective action?

Thank you!
Posted By: Rocky P

Re: APRWIn - APR overstated? - 09/13/19 12:21 AM

There will be others providing more qualified answers, but IMHO, although the purpose of the loan is construction, as a single advance, the calculations would not be. I believe the term construction loan is for multiple advances, where the amount and timing of the advances are unknown. Basically the program calculations assumes that half of the principal will be outstanding over the life of the loan, which is why the APRWin is about half of what your calculations are. I believe to qualify for a construction loan there must be multiple advances.

If you used the APRWin, but used the regular rather than construction module it should come a lot closer.

[subject to correction/modification by Richard, Randy, Dan, etc.]
Posted By: rlcarey

Re: APRWIn - APR overstated? - 09/13/19 12:23 AM

Your software provider is dead wrong. Appendix D can only be used on a multiple advance loan when the timing of the advances are not known. If you have a loan in which the funds are all disbursed at closing, you have selected the appropriate option in APRWN. At least they appear to have disclosed the finance charge correctly, even if the APR is terribly overstated, which does not trigger restitution.
Posted By: CindyS

Re: APRWIn - APR overstated? - 09/13/19 01:10 PM

Thank you so much! That's exactly how I was understanding it, but wanted confirmation that I wasn't missing something.
Posted By: Richard Insley

Re: APRWIn - APR overstated? - 09/13/19 02:08 PM

Regardless of APRWIN's instructions, the only thing that sets "construction" loans apart from TIL calculations for other types of closed-end consumer credit is that they normally involve multiple advances of uncertain amounts at dates that can't be scheduled at consummation.

Section 1026.17(c)(2) directs us to use estimates when information necessary for the calculations is unknown at the time you are required to make the calculations and deliver the disclosures. Appendix D is pre-approved as a way to make those estimates.

In the case described above, all necessary information is KNOWN at the time the disclosures were prepared---most importantly, you knew that there would NOT be additional advances after consummation. Bottom line: you handle this just like a 90-day "single payment" loan with monthly IO payments. If you fed APRWIN the correct AF and a two-stream payment schedule (11 @ $100 and 1 @ $20,100, no odd days) and got an APR of 6.8612%, that is most likely correct.