By Nicole D. Prysby, J.D.
The CFPB has issued a new version of its TILA-RESPA Integrated Disclosure FAQs. The updates clarify that construction-only and construction-permanent loans are covered by the TRID Rule and explain the special disclosure provisions for construction loans.
The Consumer Financial Protection Bureau has issued updated guidance related to compliance with the Truth in Lending Act-Real Estate Settlement Procedures Act Integrated Disclosure Rule (TRID Rule). The TRID Rule requires certain disclosures in real estate mortgage transactions. The TILA-RESPA Integrated Disclosure FAQs explain that construction-only and construction-permanent loans are covered by the TRID Rule and discusses the three special disclosure provisions for construction.
The guidance explains that construction-only loans (usually shorter-term loans with several fund disbursements where the consumer pays only accrued interest until construction is completed) and also construction-permanent loans (construction loans that convert to permanent financing once construction is completed in which the loan amount is amortized just as in a standard mortgage transaction) can be covered by the TRID Rule if the coverage requirements are met. A construction loan is covered by the TRID Rule if the loan:
- is made by a creditor as defined in 12 CFR 1026.2(a)(17);
- is secured in full or in part by real property or a cooperative unit;
- is a closed-end, consumer credit (as defined in 12 CFR 1026.2(a)(12)) transaction;
- is not exempt for any reason listed in 12 CFR 1026.3; and
- is not a reverse mortgage subject to 12 CFR 1026.33.
The guidance also explains the three special disclosure provisions for construction-only and construction-permanent loans. The first, 12 CFR 1026.17(c)(6), permits a creditor to treat a construction-permanent loan as either one transaction, combining the construction and permanent phases, or multiple transactions, where each phase is a separate transaction. The creditor may provide separate construction phase and permanent phase financing Loan Estimates and Closing Disclosures or may disclose a construction permanent loan on one, combined Loan Estimate and Closing Disclosure. The second special disclosure provision, Appendix D to Part 1026, provides methods that may be used for estimating the construction phase financing disclosures. For example, methods to estimate the amounts used for the disclosure of periodic payments for the loan. The third special disclosure provision, 12 CFR 1026.19(e)(3)(iv)(F), applies to new construction only and permits creditors, in certain instances to use a revised estimate of a charge for good faith tolerance purposes. In transactions involving new construction where the creditor reasonably expects that settlement will occur more than 60 days after the original Loan Estimate is provided, the creditor may provide revised disclosures at any time prior to 60 days before consummation if the creditor states that possibility clearly and conspicuously on the original Loan Estimate.
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