For pre-TRID loans, the construction period was not considered in the default ConformX GFE/HUD-1 calculations for FHA and VA construction to perm loans. This impacted the “Loan Term” and initial “Interest Rate” sections of the Loan Estimate and Closing Disclosure. The documents have been updated to function appropriately for all construction to permanent loans.
- FHA and VA Construction to Permanent Loan Term
The Loan Estimate and Closing Disclosure have been modified for FHA and VA construction to permanent loans to include the Construction Loan Term in Months (field 540) in the “Loan Term”. For example, if the permanent loan term is 354 months, and the Construction Loan Term in Months is 6 months, then “30 years” will print for “Loan Term”. This matches how the term already prints for Conventional construction to permanent loans.
12 CFR §1026.37(a)(8) & §1026.38(a)(5)(i)
- FHA and VA Construction to Permanent Initial Interest Rate
The documents have also been modified for FHA and VA construction to permanent loans to use the Construction Loan Interest Rate (field 539) for the initial “Interest Rate” in the Loan Terms section of the documents. The Construction Loan Interest Rate will also be used to determine whether “YES” or “NO” prints for “Can this amount increase after closing?” in the “Interest Rate” row.
12 CFR §1026.37(b)(2) and (b)(6)(ii) & §1026.38(b)
- Step Rate
If the rate can change and the loan does not have an adjustable rate (for instance if there are different construction and permanent interest rates), “Step Rate” will print for “Product”. “Adjustable Rate” will continue to print for all ARM loans and “Fixed Rate” will continue to print for loans without any interest rate changes.
12 CFR §1026.37(a)(10)(i)(B) & §1026.38(a)(5)(ii)
- Payment Increases
If the payment cannot increase, and the loan does not have an adjustable rate, “NO” will print for “Can this amount increase after closing?” in the “Principal & Interest” payment row of the Loan Terms section. “YES” will print for all ARM loans, since the payment can increase at some point after closing for all loans following an index, even if the initial payment amount is higher than the all of the adjustable rate payments of the loan.
12 CFR §1026.37(b)(6)(iii) & §1026.38(b)
- Adjustable Payment (AP) Table
If the payment can change every year, the row labeled “Subsequent Changes” in the Adjustable Payment Table will read “Every year” instead of the phrase “Every One Year”.
Official Commentary to 12 CFR §1026.37(i)(5) – Comment 3 and 12 CFR §1026.38(m)
- Adjustable Interest Rate (AIR) Table
The Adjustable Interest Rate Table will print if the interest rate can increase during the loan, including for all ARM loans. This means the AIR Table will print if the Construction Loan Interest Rate is lower than the permanent interest rate of the loan, even if the permanent interest rate is fixed. It will also print for ARM loans even if the Construction Loan Interest Rate is higher than the first permanent interest rate.The Construction Loan Interest Rate will print as the “Initial Interest Rate” in the AIR Table when applicable. If there is only one rate increase on a loan, for instance for construction to permanent loans with one rate increase at the beginning of the permanent phase, the phrase “No subsequent changes” will print for both of the “Subsequent Changes” rows of the AIR Table.
12 CFR §1026.37(j) & §1026.38(n)
These changes will be in effect on March 29, 2016. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.