Disclosing single-close construction loans (first installment)
We hate to see lenders avoiding construction lending because of compliance concerns .... don't miss this opportunity to grab market share!
We know everyone's a little worried about disclosing construction-to-perm. loans with the new forms. Now, we're not going to try and and bite off everything related to this in one quick newsletter, but one issue with disclosing these loans under TRID is this: be careful to disclose the different property taxes that will apply pre- and post-construction correctly.
Scenario
With a construction loan, the property taxes paid by the borrower will increase once the construction phase is complete (at least we hope so!) So if we escrow for property taxes, our initial escrow collection (for months within the construction phase) must be different from the ongoing property tax estimates disclosed. The trick with TRID is to correctly disclose the estimated taxes.
This is one area where we see several systems fail to do so automatically, which is why we're advising that you keep an eye out.
Page 1: Projected Payments
Here's a screen shot of an interest-only loan. Obviously, if this was a 12/30 construction-to-perm., the first column will be "1 Year" and not "Years 1-5" (sorry I didn't have a construction Loan Estimate available).
The Property Taxes disclosed here must be based on the estimated improved value of the property.
Page 2: Initial Escrow
But on page 2, we must disclose a different amount for Property Taxes. Under Section G., we disclose only those Property Taxes that we escrow for in the first few months (within the construction phase). These must be based on the unimproved value of the property, because we can't collect more in escrow than we're actually planning to use.
In Conclusion
I myself don't fully grasp why this is so difficult for systems to handle, but experts agree that it is. Until that's sorted out, just be careful to fix these disclosures manually if need be. Of course, you could avoid this issue altogether by not escrowing for property taxes during the construction phase. Something to consider.
In Other News:
Any of your loan officers partnered with realtors on Zillow? Interesting development here with Zillow partnering with Google, giving subscribers greater access to internet users. If your LOs are sharing expenses with realtors, make sure they're paying "fair market value" (document and compare alternatives, e.g., newspaper advertisements) - this change may have an effect.
How's the baby sleeping? Well, I came into work yesterday with blue pants and a brown jacket, thinking I was wearing a grey suit, if that answers your question.
Remember the lender that had a bunch of originators cheat on NMLS tests? Well even though they paid the multi-million dollar fine to Feds (among other penalties), they are still being banned in New York. Yikes!
What makes someone good at their job? What do you look for when hiring someone? Well, obviously you look for other "soft skills." Those might include ability to network, good communication skills, time management. In today's day and age, e-mail efficiency might be one of the more important skills to have. Indeed, Google's Eric Schmidt considers it to be indicative of the most effective employees. His 9 e-mail rules are:
Respond quickly
Be crisp in your delivery
Clean out your inbox constantly
Handle email in LIFO order
Remember, you're a router
When you use the bcc feature, ask yourself why
Don't yell
Make it easy to follow up on requests
Help your future self search for stuff
Read more about it at Time Magazine, or just buy his new book, How Google Works.
"[D]iscover where your intellectual arrogance is causing disabling ignorance and overcome it. Far too many people--especially people with great expertise in one area--are contemptuous of knowledge in other areas .... First-rate engineers, for instance, tend to take pride in not knowing anything about people.... But taking pride in such ignorance is self-defeating. Go to work on acquiring the skills and knowledge you need to fully realize your strengths."
- Peter F. Drucker
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