Q. If the bank agrees to make an interim construction loan but the borrower has a takeout letter from another institution, is the bank required to send a permanent loan disclosure for informational purposes?
A. As set out in the CFPB guidance below, whether the bank has to provide the LE for the permanent portion depends on whether the bank “receives a consumer’s application (i.e., the six pieces of information identified in § 1026.2(a)(3)) for both the construction financing and the permanent financing”:
“Applying all of these concepts together, as stated in Comment 17(c)(6)-3 to the TRID Rule, a creditor has the option to disclose a multiple-advance construction-permanent loan with:
- One, combined Loan Estimate and one, combined Closing Disclosure; or
- Two or more Loan Estimates for each phase and two or more Closing Disclosures for each phase (for example, one set for the construction financing as a whole and one set for the permanent financing).
The ability to separate these transactions into two or more disclosures under § 1026.17(c)(6) is available regardless of whether the consumer initially applies for construction-only or both construction and permanent financing at application. But note that if the creditor receives a consumer’s application (i.e., the six pieces of information identified in § 1026.2(a)(3)) for both the construction financing and the permanent financing, disclosures for both phases must be given within the timing provided in § 1026.19(e) and (f). Comment 19(e)(1)(iii)-5.”
TILA-RESPA Integrated Disclosures for Construction Loans, p. 6: https://files.consumerfinance.gov/f/documents/cfpb_trid-separate-construction-loan-guide.pdf
Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call (888) 353-3933 or email info@compliancealliance.com and ask for our Membership Team.
