TRID Construction Loan Application Clip

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Transcript

There’s a couple of different ways construction applications come in. Some of you may simply do construction only. In other words, we’re only going to take requests for credit and process them for the construction financing. We’re going to let some other financial institution do the permanent financing. So, we only take construction loans for the construction phase of the project. We let XYZ Bank down the street, in the next city, in the next town, in the next state, wherever, they do permanent financing. This is our niche, just to do construction. That would be one application for one loan. That’s pretty straightforward.

We go down to the bottom of page letter C, some of you are listing an offer, a little bit of a different production. You do a construction to perm all in one closing. So it’s a construction to perm all in one, one app for one loan. So far, things are pretty consistent whether your letter B, we only do the construction financing, or whether it’s letter C, you do construction and perm, one product, one application, one loan. That’s the takeaway. It’s one app for one loan. It’s a very simple streamlined process.

Many of you listening probably offer a product that goes something like this. You do two phase financing. In other words, I walk in and I say, “I want to build my dream house,” and you process as two different phases. Two different products. I want to be careful with the whole phase/product thing here because some of you who are listening are going, “Well, I do construction to perm all in one. That’s two phases.” Yeah, but it’s one product. One loan. One closing. One application for that one loan, one loan closing, has this built in term where it converts to from construction to permanent financing. One loan, one closing.

Letter D on page number two is different than that what this is, is you have two different loan products: a construction loan product, and when that matures you’re going to convert it or refinance it into a permanent loan product with a new closing and a new maturity date. So, this is where things get a little more complex in the TRID will because they give you some options. What they said is you can turn it into a single app that is for two loans: construction only, followed by permanent financing. Or, you can treat it as two separate applications. Someone who comes and applies for a construction loan, and you do that, and then they apply separately at the same institution for a permanent loan.

There’s three different ways to go about this, I’m going to back up for a moment. We’re going to go to page two, letter D, number one. I wrote next to letter D1, “Path of least resistance.” This is the way I was taught. This is the way when I started working at Bankers Compliance Consulting, and I was able to go out and teach, this is how I taught other bankers. To me, this is the simplest approach. There’s another one, and I’ll come back to it. But when somebody comes into the bank, think about the other side of the desk, the consumer side of this. The consumer walks in and says, “Hey, I want to build my dream home.” “Yeah, we can take care of that. We do that.”

I lay a bunch of stuff down on your desk, and the six items or whatever it is. You’re taking information from me one time for two different loan products. Then you’ll issue me a loan estimate for the construction loan estimate, for the permanent, within three days of getting the sixth item for TRID. There’s no question about what the process is. Somebody wanted to build their dream home. You can help. Here’s the disclosures within the three days of the sixth item for the two different products.

The other alternative option is to have people come in and apply and say, “I want to build my dream home,” and you direct them to the person that takes the construction app. That person only talks construction. They only deal with construction. What you’re going to do is you have a separate process for the permanent financing. When the construction lending person is done, they’ll say, “All right, now you need to go apply for the perm loan. That happens up on the third floor down the street in one of our other offices.” The idea is they wrote this into TRID to allow for procedural flexibility. I still believe the path of least resistance is one app for two loans.

People don’t come in and say, “Oh, I’d like a construction loan. Thank you. I’ll be back in a couple of weeks to talk about permanent financing.” No, people walk in and say, “I want to build my dream home,” and you say, “Yeah, we can help you out. We have two different products. We’ll take your information for both and we’ll process it.” That’s the path of least resistance. I bring that up for this reason, what we want to make sure is that we’re not discouraging people from moving forward with the process. There also can be some issues that crop up if you’re taking two apps for two loans: one for construction, one for permanent. What happens if I sit down and talk construction with somebody and I never move forward with it, and you happen to be HMDA bank?

Now you have to report that construction app because you had no plans for permanent financing, because it never got that far. So, you’ve got to be careful with some of the issues that come up if you take two separate applications as it relates to number two on page number two in your materials.

Published
2020/07/22

TRID & Construction Loans

When it comes to TRID, disclosing the “loan product” for a construction loan isn’t always as clear-cut as it seems.  Let’s take a construction to perm (all-in-one) loan with one closing.  Say the rate for the construction phase is going to be fixed at 4%.  You know that the permanent phase will also have a fixed rate but you don’t yet know what it will be at this point.  Logic would lead you to believe that the loan product should be disclosed as a fixed-rate transaction but the TRID rules aren’t always logical.

Click on the video to listen to Jerod explain more.

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Transcript Below

Let’s talk a little shop about TRID and construction loans. Hi there, this is Jerod Moyer with Banker’s Compliance Consulting. Specifically today, what I want to get into is the loan product description as it relates to a construction to perm all in one with a single closing. Now I’m going to give you some specifics about this product that we’re going to discuss. Let’s take, for example, that you’re going to do the construction phase. Let’s just say your rate’s going to be 4% fixed. You also know that the permanent phase is going to have a fixed rate, but it’s going to be a different fixed rate than your construction phase. So both phases are fixed rates. It’s just that you don’t know yet what that permanent phase fixed rate’s going to be. Now logic tell you that this product description should be a fixed rate transaction. However, the TRID rules have some interesting requirements as to how you’re supposed to go about this business.

Even though both phases are going to be fixed, you know what the construction phase is going to be fixed at but because there’s going to be a transition from this fixed rate to that fixed rate, the one that’s not yet known for the permanent phase, that transaction is actually deemed to be, from a TRID standpoint, an adjustable rate transaction. You’ll have to count account for that within the product description and the loan term section within your TRID disclosure. So don’t get tripped up by the fact that it’s fixed, followed by fixed, and the system trying to disclose it as adjustable because it actually has to be done that way.

This is one of the many TRID training elements that we dive into within our training library. Invite you and your team to check out our different training options or, better yet, give us a call. We’d love to figure out how we can partner with you to meet your training needs as it relates to TRID and compliance, or any other compliance requirement for that matter.

Published
2020/07/21

Did you know the CFPB recently published a “Factsheet” on disclosing Title Insurance for TRID?

They also updated their TRID FAQs to address seller-paid costs, calculating total of payment and signature requirements.

Are your current procedures in line with this guidance? Do you know how it will affect your team?

Join Banker’s Compliance Consulting for TRID Hot Spots, a two-hour compliance webinar, this Thursday. Our team will guide you through the TRID trouble spots and give you the latest guidance, in plain English! Register today!

The more and more we train on TRID the more we realize that there is a lot of misunderstanding and/or misconceptions surrounding the “good faith” requirement and unlimited tolerances.  Good faith means you’ve done your due diligence and the fee estimates on disclosures are based on the best information reasonably available at the time the disclosure is provided.  So, what effect does “good faith” have on unlimited tolerances?

Click on the video to listen to Jerod explain more.

Published
2020/06/25

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TRID Hotspots

Be sure to JOIN US on June 25, 2020, for our webinar, “TRID Hotspots”. 

The more and more we train on TRID the more we realize that there is a lot of misunderstanding and/or misconceptions surrounding the “good faith” requirement and unlimited tolerances.  Good faith means you’ve done your due diligence and the fee estimates on disclosures are based on the best information reasonably available at the time the disclosure is provided.  So, what effect does “good faith” have on unlimited tolerances?

Click on the video to listen to Jerod explain more.

Published
2020/06/15

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TRID: Changes & Revisions

*In light of the recent events surrounding COVID-19, you may run into changed circumstances and the need for revised disclosures, now more than ever. Make sure you are on top of the rules!

JOIN US on March 31, 2020, for our webinar, “TRID: Changed Circumstances & Revised Disclosures”.

Are you having trouble with third parties, like a closing agent, settlement agent, realtor, insurance company, or maybe even a title company getting the appropriate information to you so that you can complete the Closing Disclosure and still close on time?  We hear a lot of stories about this issue.  If you don’t get the information in time, what are you allowed to do?

Click on the video to listen to Jerod explain more.

Other Upcoming Lending Webinars:

March 17thTRID: How to Complete the Loan Estimate

March 24thTRID: How to Complete the Closing Disclosure

March 31stTRID: Changed Circumstances & Revised Disclosures

April 2ndAbility to Repay, QM, High Cost & Higher Priced Mortgage Loans

April 9thHMDA Covered Transactions

April 14thApplicants & Applications

Published
2020/03/23
Jerod Moyer

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