Independent Banker - June 2023 - 48

ICBA is
working to
improve TRID
disclosures
CONSUMER CONSTRUCTION LOANS are not like
other consumer credit products, and lenders often
have the tough job of explaining those nuances and
complexities to their customers.
" Community banks do an excellent job of explaining
construction loans and working with the borrower
so they understand what's happening, " says Ron
Haynie, senior vice president of housing finance policy
for ICBA.
And there are plenty of issues to explain, such as
how that loan balance grows as money is disbursed.
Or in the case of a construction-to-perm loan, when
does it roll to a permanent loan, and at what rate?
One of the hurdles for bankers has been fitting
construction loans into TILA-RESPA Integrated
Disclosure rules that were originally designed for
purchase and refi mortgages. ICBA, in conjunction
with key industry partners, has been advocating for
the Consumer Financial Protection Bureau (CFPB)
to modify those TRID rules related to consumer
construction and construction-to-perm loans.
" If the process is easier from a compliance
standpoint and a consumer standpoint, we believe
that will encourage more community banks to
make consumer construction and construction-topermanent
loans, and ultimately, that would help the
housing situation in this country, " Haynie says.
The goal is to make TRID rules more robust and
provide more clarity for a consumer who is doing a
construction loan or construction-to-permanent loan.
Specifically, the proposal would modify the current
Loan Estimate and Closing Disclosure. If approved by
the CFPB, the disclosures would include improved
construction phase details, a construction cost
breakdown and enhanced disclosures regarding the
consumer's permanent loan financing.
ICBA hopes to get permission from the CFPB in
the first half of this year that would allow it to move
forward with a pilot project to test modified TRID rules
with a group of community banks.
Don Frost
there are signed contracts between
the buyer and the builder, and the
community bank conducts due
diligence on the builder that includes
making sure the builder is properly
licensed and insured.
Having draws as construction
progresses also helps to mitigate the
risks. Avidia Bank will lend up to
80% of the land value on day one,
but it doesn't give out disbursements
until certain work is completed. " We
track internally how projects are
progressing, " Frost says. " Within
a certain period of time from the
closing, for example, we would expect
the foundation to be poured. "
In addition, there is typically an
inspection process after certain
steps are completed before funds are
released. Avidia Bank might have as
many as 20 disbursements on the
schedule on the construction loan
for a new single-family home. " We
like to have a lot of disbursements
on the schedule, because we feel that
mitigates the risk as well and helps to
keep the project moving, " Frost adds.
Navigating credit and
market risks
First Citizens Bank in Mason City,
Iowa, has deep roots in agriculture
lending that it has diversified with
both residential and commercial
construction lending. The bank also
engages in participation loans with
48 // ICBA Independent Banker // June 2023
Photos courtesy: Avidia Bank
Independent Banker - June 2023

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