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In the December 10th training on TRID for Construction Loans your Construction Clarification on page 35 stated:
Construction – Clarification
When utilizing a separate construction and permanent transaction, Appendix D requires the payment to be based on ½ of the commitment amount at the contract interest rate for the entire construction period (i.e.; 12 months).
Once the payment is estimated that is the payment the borrower will make for the entire term of the construction period.
If the contract calls for uniform payments for the full term of the loan, like Appendix D, then the answer to “Can the payment increase after closing” is “No.”
If your loan product recalculates the amount of interest due each month based on the actual amount advanced then the answer is “Yes” for “Can this amount increase after closing?” and a bullet point that explains that increase – “Can go as high as…”We fall into the 3rd option. We charge interest based on the total amount advanced. So per your training our answer should be “yes” instead of “no”. However When I researched with our LOS (Laser Pro), they reference Appendix D Estimated interest – Assume 1/2 of commitment amount is outstanding.
Any one else had this problem with Laser pro?
Since Kelly was one of the presenters for this webinar I ran this by her. Please see her comments below.
If your FI is charging interest on the amount actually advanced for the time it is outstanding, Appendix D – Part I.A should be utilized, which states to calculate the estimated interest on one-half of the commitment amount outstanding at the contract interest rate for the entire construction period. If this method is utilized, the repayment schedule requirements are to omit the number and amounts of any interest payments in the payment schedule disclosure and disclose the fact that interest payments are required and the timing of such payments.
If you are calculating interest based on the entire commitment amount outstanding at the contract interest rate for the entire construction period then you should be utilizing instructions in Appendix D – Part I.B which states to assume the entire commitment amount is outstanding at the contract interest rate for the entire construction period and the repayment schedule should disclose interest payments.
Neither of these methods tell you how the “Can this amount increase after closing?” should be answered – we believe you should look to your contract language. Is the borrower’s payment increasing after consummation? Most banks will increase the interest payment each month as draws are made on the transaction; therefore, it would make sense that the answer would be Yes to the question. If so, contact Laser Pro to see what you need to do to get that disclosed as a “yes”.
Keep in mind, the LOS vendors have had numerous conversations with the CFPB so they may have received advice that we are unaware of.
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