Relief Needed on TRID Disclosure
Community banks are facing considerable challenges trying to comply in good faith with the Consumer Financial Protection Bureau’s (CFPB) mortgage disclosure regulation (TILA-RESPA Integrated Disclosure, TRID) with respect to residential construction-only loans.
Prior to the implementation of this new regulation, single-family construction loans for owners/borrowers were exempt from this regulation because they were deemed to be temporary loans covering construction services. However, the new rules under TRID now apply this regulation to construction financing and require the same disclosures, which are really meant for 30-year mortgages, not for short-term, construction-only loans.
For lenders, these new disclosure requirements have created confusion, which has led to compliance issues that have created additional uncertainties in their application to specific construction projects. As a direct result, many financial institutions across the nation have ceased this type of lending rather than face potential liability for inadvertent errors. This has resulted in a severely curtailed marketplace for borrowers seeking to build or rebuild, which has been particularly problematic in regions seeking to recover following several recent natural disasters, which include hurricanes, floods, mudslides, wildfires and volcanic eruptions.
Members of Congress should be aware of the negative impact of this regulation, and support efforts to obtain regulatory relief. The primary goal is a revision to the current rule correcting the misapplication of the disclosures, coupled with a reduction in liability until the revised rule can be implemented. We have urged the CFPB to adopt a more straightforward disclosure process for this type of loan, where the bank can provide the following information in a letter or a memorandum: loan amount, interest amount, term of the loan and loan funding/disbursement schedule. This type of disclosure should give the lender flexibility to meet the unique needs of his/her borrower, as well as provide the borrower with clear and concise details about the fundamental aspects of the construction loan.