Fallout From TRID Implementation

Nobody was more sTRID picurprised than me at the fallout from the TRID implementation. I honestly believed that it was much ado about nothing. It seemed pretty straight forward and at first glance, easier to understand than the last update.  I learned a valuable lesson. Nothing is ever straight forward in the mortgage industry.

One section of the industry that CFPB missed the boat on is the construction to permanent loans guidelines. The CFPB has issued what it calls a ‘fact sheet’ regarding the disclosure of construction-to-permanent loans under the TILA/RESPA Integrated Disclosure (TRID) rule, which the CFPB refers to as the Know Before You Owe rule.  The fact sheet falls far short of the detailed guidance sought by the mortgage industry.

A construction-to-permanent loan is a single loan that has an initial construction phase while the home is being built, and then a permanent phase for when construction is complete and standard amortizing payments begin.  Although, as noted below, the TRID rule does address such loans, the rule does not provide detailed guidance on how to complete the Loan Estimate and Closing Disclosure for such loans, nor are sample disclosures included with the TRID rule. Ballard Spahr’sRichard J. Andreano, Jr. sent out a write-up on the recent attempt by the CFPB to address the construction-to-permanent loan issue.

“In the fact sheet, the CFPB notes that Regulation Z section 1026.17(c)(6)(ii) and Appendix D to Regulation Z continue to apply in the new TRID rule world, and the CFPB specifically notes that they apply to the Loan Estimate and Closing Disclosure. The cited section provides that when a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction. The fact sheet indicates, as the CFPB staff had informally advised in a May 2015 webinar, that a construction-to-permanent loan may be disclosed in a single Loan Estimate and single Closing Disclosure, or the construction phase and permanent phase can be disclosed separately, with the construction phase being set forth in one Loan Estimate and Closing Disclosure and the permanent phase being set forth in another Loan Estimate and Closing Disclosure.

Appendix D provides guidance on how to compute the amount financed, APR and finance charge for a multiple advance construction loan, when disclosed either as a single transaction or as separate transactions. The TRID rule added a commentary provision regarding Appendix D to address the disclosure of principal and interest payments in the Projected Payments sections of both the Loan Estimate and Closing Disclosure. The commentary provision does not address other elements of the Projected Payments sections. Additionally, the CFPB does not clarify in the fact sheet that Appendix D applies only when the actual timing and/or amount of the multiple advances are not known.”

Likely realizing that this guidance would fall short of the detailed guidance, and sample disclosures, sought by the industry, the CFPB’s final statement in the fact sheet is “The Bureau is considering additional guidance to facilitate compliance with the Know Before You Owe mortgage disclosure rule, including possibly a webinar on construction loan disclosures.

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