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Construction/Perm Loans & HPML’s

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  • #2468
    janet prater
    Participant

    Do you have any information that addresses higher priced mortgages and construction to permanent loans?

    We are working on a this type of loan product and have the following questions:

    1. Most likely we will have a “step rate mortgage” which allows a fixed rate for the construction period and a different fixed rate for the permanent period; however, is written as one note. Reg Z permits either 2 separate disclosures with options on where the points can be allocated or one disclosure with less flexibility. Higher Priced mortgages exclude construction loans but since our product is a one phase is the construction exemption lost? If we elect to do 2 separate disclosures, which phase is the higher priced mortgage calculated on?

    2. Loan would be covered under builders risk for the first year. Therefore, when must escrow for insurance start? We can escrow for taxes on unimproved at closing and include shock payment notice but estimating the homeowner’s insurance at the beginning of the construction phase is just a pure guess on cost. Should we not get the borrower’s insurance premium before the annual escrow analysis, all of the money is refunded back to them. If we don’t start escrowing for insurance until the permanent phase begins, are we in violation of Reg Z if the loan is a higher priced mortgage (even though homeowner’s insurance was NA)?

    #2901
    dmurray
    Participant

    What’s the length of this loan going to be? Sometimes if you have a “one time closing” on a construction to perm and the length of your loan is longer, you can avoid this being a HPML. Have you tested this yet?

    Also if you’re going to have Builder’s Risk insurance, who’s name is the insurance going to be held under? The builder or the borrower? I definitely wouldn’t be escrowing for BR insurance if the builder was going to carry it. (I know this might not be the case though.)

    Sorry that I’m not exactly answering your question.

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