CFPB Released FAQs on TRID Rule and Construction Loans

On May 31, 2019, the CFPB updated its TILA-RESPA Integrated Disclosure FAQs by adding two FAQs relating to construction loans, which clarified that construction-only loans and construction-permanent loans are covered by the TRID Rule and that there are special disclosure provisions for these types of loans under the rule.

The CFPB stated that, generally, a loan, including construction-only loans and construction-permanent loans, is covered by the TRID Rule if the loan:

• Is made by a creditor;
• Is secured in full or in part by real property (a construction loan may be secured by both real and personal property) or a cooperative unit;
• Is a closed-end, consumer credit transaction;
• Is not exempt; and
• Is not a reverse mortgage.

Additionally, the CFPB also explained that both initial construction and subsequent construction can be covered by the TRID Rule.

Further, the CFPB clarified that there are special disclosure provisions for construction-only and construction-permanent loans under the TRID Rule, contained in, among others, 12 CFR § 1026.17(c)(6), Appendix D, and § 1026.19(e)(3)(iv)(F).  Section 1026.17(c)(6) allows a creditor to treat a construction-permanent loan as either one transaction, combining the construction and permanent phases, or multiple transactions, where each phase is a separate transaction.  This means that a creditor may provide separate construction phase and permanent phase financing Loan Estimates and Closing Disclosures or may disclose a construction-permanent loan on one, combined Loan Estimate and Closing Disclosure.  Appendix D provides methods that may be used for estimating the construction phase financing disclosures, whether disclosed separately or combined with the permanent phase financing.  Section 1026.19(e)(3)(iv)(F) relates to the optional disclosures for new construction loans, and allows creditors, in certain instances, to use a revised estimate of a charge for good faith tolerance purposes.  In new construction transactions where the creditor reasonably expects that settlement will occur more than 60 days after the original Loan Estimate is provided, the creditor may provide revised disclosures at any time prior to 60 days before consummation, if the creditor states that possibility clearly and conspicuously on the original Loan Estimate.