Construction Only Period QM Determination

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    We originated a construction-perm loan with a combined TILA disclosure on 8/18/14. There are 12 monthly construction interest payments beginning 10/2/14. The construction period ends 9/2/15 with the P&I beginning 10/2/15 (71 payments followed by a balloon payment). An auditor stated the construction period is 380 days, which exceeds the TILA ATR exemption for the 12-month construction period of the construction-perm loan. We do follow the ATR rules for checking income, employment, DTI, etc. Is this accurate that we are not in ATR-QM compliance? If so, how can we set up the construction-perm loan to ensure it is a QM.


    Based on my understanding of your question, it just sounds like your construction loan actually exceeds 12 months and therefore doesn’t meet the exemption. If you applied the ATR requirements to the construction phase as well then you should be fine. Going forward ensure your construction phase is 12 months or less (not necessarily 12 monthly payments or less) so it will be exempt from complying with the ATR/QM requirements. See commentary below.

    From the commentary:
    2. Construction phase of a construction-to-permanent loan. Under § 1026.43(a)(3)(iii), a construction phase of 12 months or less of a construction-to-permanent loan is exempt from § 1026.43(c) through (f). A construction-to-permanent loan is a potentially multiple-advance loan to finance the construction, rehabilitation, or improvement of a dwelling that may be permanently financed by the same creditor. For such a loan, the construction phase and the permanent phase may be treated as separate transactions for the purpose of compliance with § 1026.43(c) through (f), and the construction phase of the loan is exempt from § 1026.43(c) through (f), provided the initial term is 12 months or less. See § 1026.17(c)(6)(ii), allowing similar treatment for disclosures. Where the construction phase of a construction-to-permanent loan is renewable for a period of one year or less, the term of that construction phase does not include any additional period of time that could result from a renewal provision. For example, if the construction phase of a construction-to-permanent loan has an initial term of 12 months but is renewable for another 12-month term before permanent financing begins, the construction phase is exempt from § 1026.43(c) through (f) because the initial term is 12 months. Any renewal of one year or less also qualifies for the exemption. The permanent phase of the loan is treated as a separate transaction and is not exempt under § 1026.43(a)(3)(iii). It may be a qualified mortgage if it satisfies the appropriate requirements.

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