By Gina Ellis
As we are performing our initial audits of the new integrated disclosures, we are noticing some common problems, particularly with construction transactions.
When disclosing the information for an interest only loan with a balloon payment, the Loan Estimate and Closing Disclosure should not include an Adjustable Payments (AP) Table.
The “In 5 Years” section of the Comparisons table on page three of the Loan Estimate should disclose the principal balance of the loan as the total principal paid off if your balloon payment is due before the end of the five-year period.
Disclosure of builder’s risk insurance will depend on whether the insurance is, according to the contract, required by the lender or the builder, who is responsible for paying the premiums, and whether the premiums will be paid at or before the loan closing. When the bank is requiring the builder’s risk premiums to be paid by the borrower, either before or after closing, the premiums should be included in a separate line in Section F on the Loan Estimate and Closing Disclosure, as a prepaid item. When the contract requires the builder to pay the premiums, the premiums will not be included on the Loan Estimate. However, the premiums will still need to be included on the Closing Disclosure in the paid by others column, on a separate line in Section F, as part of the pre-paids.
Disclosure of the monthly interest payments should indicate “only interest” in bold and italicized font in the projected payments section of both the Loan Estimate and Closing Disclosure.
These are just of few issues that can easily be corrected by communicating with your software vendor to ensure the calculations and formatting are correct. We recommend you continue to test your documents, particularly for more problematic transactions and perform additional training as forms are updated or additional guidance is issued. Be sure to document all your efforts to comply with these complicated integrated disclosure rules.
Still have questions? Give us a call today at (405) 607-7000. We’re here for you.