Pub. 4 2016 Issue 1

www.uba.org 10 COMPLIANCE CORNER What We Learned: Know Before You Owe Mortgage Disclosure Rule By Jennifer Kirby I f you missed the CFPB’s TRID Construction Lending Webcast because you were too busy slogging through work or just couldn’t motivate yourself to sit through another drone-voiced slide-reading webcast, don’t worry, because we listened for you. If you wish to check out the webcast yourself, it’s available at ConsumerComplianceOutlook.org. It’s long and doesn’t even touch on Closing Disclosures, but it is helpful in that it answers a few tricky questions that probably keep some of you up at night. Here’s a little bit of what we learned. Loan Purpose Waterfall Approach Compliance Alliance has received a lot of questions about the purpose disclosed on the Loan Estimate for construction loans. If loan proceeds primarily will be used to finance construction costs, the loan purpose should always be Construction, right? Not always. We learned from the webcast that the use of pro- ceeds to finance construction costs does not by itself impact the disclosure of the loan purpose on the Loan Estimate. Section 1026.37(a)(9) defines four possible loan purposes, in the following waterfall order: • Purchase • Refinance • Construction • Home equity loan When determining which purpose to disclose, the creditor must look at the waterfall of four possible purposes in the order that they appear in section 1026.37(a)(9), and select the first one that applies to the loan. To illustrate the use of the waterfall: • If the loan meets the definition of Purchase because the consumer intends to use the loan to purchase the property that will secure the loan, the creditor must disclose the purpose as Purchase, even if the loan also meets any other definitions appearing later in the waterfall. • If the loan does not meet the definition of Purchase, but meets the definition of Refinance because the consumer intends to use the loan to satisfy an existing obligation already secured by the real property, the creditor must dis- close the purpose as Refinance, even if the loan also meets other definitions appearing later in the waterfall. • If the loan will be used to finance the initial construction of a dwelling on the property and will not be used for any purchase or refinance purposes, the creditor must disclose the purpose as Construction.