On May 31, 2019, the CFPB released two new frequently asked questions (FAQs) to address the application of the TILA-RESPA Integrated Disclosure (TRID) rules to consumer construction loans.
FAQ #1: Are construction-only loans or construction-permanent loans covered by the TRID Rule? Yes. Generally, a loan, including a construction-only and construction-permanent loan, is covered under TRID if it meets the following coverage requirements:
- Is made by a creditor as defined in Regulation Z.
- Is secured in full or in part by real property (which may also include personal property) or a cooperative unit.
- Is a closed-end, consumer credit transaction.
- Is not a reverse mortgage subject to §1026.33.
- Is not otherwise exempt from Regulation Z.
FAQ #2: Are there special disclosure provisions for construction-only or construction-permanent loans under the TRID Rule? Yes. In addition to other required disclosure provisions under Regulation Z, there are three special disclosure provisions for TRID-covered construction-only and construction-permanent loans:
- Under 12 CFR 1026.17(c)(6), a creditor may treat constrution-permanent loans as either one transaction or multiple transactions. Although this section of the rule existed prior to TRID, the CFPB reiterated that a TRID construction-permanent loan may be disclosed with one set of disclosures reflecting both the construction and the permanent phases or with two sets of disclosures, one reflecting the construction phase and one for the permanent phase. Additional Commentary was added with the TRID final rule to reflect its applicability.
- Appendix D provides methods that a creditor may use to estimate and disclose the construction phase of a covered construction-only or construction-permanent loan. This Appendix provides special procedures and assumptions creditors may use to provide consistent and compliant disclosures when disclosing based on the best information reasonably available at the time the disclosure is made. For example, in cases where the timing of advances or the amount of advances in the construction phase is unknown at or before consummation, Appendix D provides methods to estimate the amounts used for the disclosure of periodic payments for the loan, which typically are interest-only payments for the construction phase, or the disclosure of amounts based on the periodic payment. Although Appendix D existed prior to TRID, it and its Commentary were amended to reflect the applicability of TRID.
- Under 12 CFR 1026.19(e)(3)(iv)(F), a creditor is permitted to use a revised estimate of a charge for good faith tolerance purposes under certain instances involving new construction if settlement is reasonably expected to occur more than 60 days after the initial Loan Estimate (LE) is provided. The CFPB reiterated the February 2016 amendment to TRID that to leverage such revised estimate, the creditor must provide the consumer with a clear and conspicuous disclosure on the initial LE informing the consumer that the applicant may receive a revised Loan Estimate at any time prior to 60 days before consummation under the master heading “Additional Information About This Loan” and the heading “Other Considerations”. If no such statement is provided, the creditor may not issue revised disclosures without an otherwise valid changed circumstance.