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CFPB Issues Guidance on Construction Loans / TRID

Good Tuesday morning from our nation’s capital! I’m happy to be in attendance alongside the nearly 5,000 credit union professionals at this year’s CUNA Governmental Affairs Conference (GAC). GAC is a tremendous opportunity to network with others in the industry and share stories of the #CUdifference with our legislators and regulators.

As always, CUNA has done a great job of putting together a jam packed agenda here in Washington, D.C. As a result, I’ll keep today’s post brief. You know, it’s funny. I can actually hear my regular readers (all three of them) breathing a collective sigh of relief.

Last month the Consumer Financial Protection Bureau (CFPB) was kind enough to issue some clarifying guidance on complying with the Integrated Disclosure Rule (TRID) relative to construction loans. While many in the industry found the guidance lacking in substance, at least it’s something. Let’s take a moment to review the key points:

Construction Loans are Subject to TRID

While you were not required to provide the Good Faith Estimate (GFE) on construction loans as they are considered temporary financing under the Real Estate Settlement Procedures Act (RESPA), most construction loans do fall within the scope of TRID. As a result, both the Loan Estimate and Closing Disclosure are required to be provided in connection with a closed-end construction loan.

Disclosing Construction Loans as One or Two Transactions

Section 1026.17 of Regulation Z has long provided that your credit union may choose to disclose a construction-to-permanent loan as one transaction or alternatively as multiple transactions. For one transaction, your credit union will provide one Loan Estimate and one Closing Disclosure. If disclosing the construction-to-permanent loan as multiple transactions, you’ll have a Loan Estimate and Closing Disclosure for each phase (construction and permanent).

Appendix D Guidance

Appendix D to Regulation Z provides guidance for computing the finance charge and APR associated with a construction loan. Part I identifies how to make these calculations if the construction-to-permanent loan is being disclosed as multiple transactions. Part II identifies how to make these calculations if the loan is being disclosed as a single transaction. In addition, the newly added comment 7 to Appendix D provides guidance for completing the projected payments table relative to construction loans on both the Loan Estimate and Closing Disclosure.

Revised Loan Estimate

Noticeably absent from the guidance was a reminder about providing a revised Loan Estimate in association with a construction loan. As was the case with the GFE under RESPA, Section 1026.19(e)(3)(iv)(F) of Regulation Z provides that your credit union may re-issue a revised Loan Estimate in association with a construction loan under certain conditions. Those conditions are:

  • The credit union reasonably expects settlement to occur more than 60 days after the original Loan Estimate was provided;
  • The original Loan Estimate clearly and conspicuously states that the credit union reserves the right to provide a revised Loan Estimate at any time prior to 60 days before consummation; and
  • The revised Loan Estimate is issued prior to 60 days before consummation.

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