VIDEO: Are Construction Loans Covered by TRID?
In this Compliance Clip (video), Adam answers the question of whether construction-only and construction-permanent loans are covered by TRID and Regulation Z. And although the answer is obvious, Adam discusses the specific citations from the regulations and from the CFPB’s Frequently Asked Questions to further explain the answer.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to answer the question of whether construction-only and/or construction-permanent loans are covered by TRID and Regulation Z. The question is: Are construction-only loans and construction-permanent loans covered by the TRID rule?
For those of you that are in lending compliance, you may be saying, what? Yes, this is a very simple question to answer. The answer is yes. We're done. No, we're not done. We're covering this because this is one of the frequently asked questions from the CFPB, so we’re trying to go through those from time to time.
We want to take a look at where the answer and the citation comes from. It actually comes from 1026 of Regulation Z and we'll give you these specific parts for both construction-only loans and construction-permanent loans. And then it also comes from the TILA-RESPA Integrated Disclosures Frequently Asked Question No. 1 on Construction Loans. So let's take a look at a couple of things.
First of all, under Regulation Z, the citations are 1026.19(e)(1)(i) that tells us that in a closed-end consumer credit transaction secured by real property or a cooperative unit, other than reverse mortgages, the creditors shall provide the consumer with good faith estimates of the disclosures of the loan estimate. Also Comment 2 to 1026.17(c)(6) says that both construction-only loans and construction-permanent loans can be covered by the TRID rule if the coverage requirements are met. Additionally, both initial construction and subsequent construction loans can be covered by the TRID rule. Of course, if you've got a business purpose loan and there's an exemption for regulation Z, like construction loans not going to be covered, but if it's otherwise covered by regulation Z, it's not going to be exempt just because it's a construction or construction-permanent loan.
Now, from Frequently Asked Question No. 1 under the Construction Loans section, they tell us that generally, a loan, including a construction-only and construction-permanent loan is covered by the TRID rule if it meets a number of requirements. First of all, if it's made by a creditor as defined by Regulation Z, that probably applies to you if you're watching this video; it's secured in full or in part by real property, which a construction loan may be secured by both real and personal property or by a cooperative unit; it’s a closed-end, consumer credit transaction as defined in regulation Z; it's not exempt for any reason listed in 1026.3, such as being business purpose; and it's not a reverse mortgage that would be subject to rules under 1026.33. So yes, of course, unless it's otherwise exempt, a construction-only or construction-permanent loan would be covered by TRID.
That's it for this Compliance Clip.