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CFPB Releases Fact Sheet for Construction Loan Disclosures

The CFPB has issued a fact sheet that covers the basics of construction loan disclosures under the TILA-RESPA Integrated Disclosures (TRID) rule.  The fact sheet confirms that most construction loans are covered by the TRID rule.  The TRID rule does not cover construction loans that are open-end transactions or loans for commercial purposes.

The fact sheet notes that the TRID rule expressly affirmed that Regulation Z’s existing provisions for disclosures for certain construction loans and construction-to-permanent loans (i.e., Section 1026.17(c)(6)(ii) and Appendix D) continue to apply under the TRID rule, including with respect to the Loan Estimate and Closing Disclosure.

Section 1026.17(c)(6)(ii) 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 permanent phase may be treated as either one transaction or more than one transaction.  The fact sheet comments that a creditor can disclose a construction-to-permanent loan in one combined disclosure (i.e., a single Loan Estimate and single Closing Disclosure), or use a separate set of disclosures for each of the two phases. This is the case regardless of whether the construction phase and permanent phase are closed at the same time or separately.

Appendix D provides guidance on calculating the interest portion of the finance charge and other terms of a construction loan with multiple advances.  The fact sheet notes that the TRID rule added comment 7 to Appendix D.  The new commentary provision demonstrates the disclosure of the principal and interest payments in the Projected Payments Section in the Loan Estimate and Closing Disclosure, based on whether the construction phase and permanent phase are disclosed as a single transaction or as separate transactions.

The fact sheet concludes by stating that the CFPB may provide future advice on TRID compliance, including a potential webinar on construction loans.

The fact sheet is located at: http://files.consumerfinance.gov/f/201601_cfpb_know-before-you-owe-mortgage-disclosures-and-construction-loans.pdf.