I am looking for clarification on proper disclosure of insurance on construction loans. We require builder’s risk insurance to be in place at closing. Depending on the situation, it may be borrower-paid or builder-paid. On the LE, we are disclosing an estimated amount for homeowner’s insurance – like we would on a purchase transaction. However, when preparing the CD, we are then disclosing the actual amount of builder’s risk on the HOI line under Prepaids and indicating as either borrower-paid before closing or paid by others (if the builder pays for it).
It is my understanding that the CFPB never opined on builder’s risk insurance and construction loans so I understand that there may not be a clear-cut answer. This hasn’t been identified as an issue during audits or exams, but we would like to know if we should be disclosing differently.
You are correct. THE CFPB has not opined on the topic as of today.
The TRID rules no not specifically addresses how to disclose builder risk premiums. The product is similar to inspection and handling fees. When inspection and handling fees are paid after closing they do not appear on the CD, but instead appear on an attachment to the CD. Our position here at Compliance resource is that if the CFPB clarifies builders risk premiums paid after closing they would use the same logic as for the inspection and handling fees. Until the CFPB clarifies the proper handling of builder risk premiums, we suggest, if the borrower will pay the charge, that the charge be included included in the prepaids.
We continue to watch for clarification through regulatory guidance or through reported violations.