Regulation Z permits a construction-to-permanent loan to be disclosed in which way when the applicable requirements are met?
Correct Answer
C) With combined disclosures or with the construction and permanent phases treated separately
Why this is correct: Regulation Z permits a construction-to-permanent loan to be disclosed with combined disclosures or with the construction and permanent phases treated separately, when the applicable requirements are met. This flexibility under §1026.17(c)(6)(ii) allows creditors to choose the disclosure method that best fits the loan structure, provided they apply the chosen method consistently for all required disclosures. Why the other choices are wrong: The option "Only as an open-end line of credit" is incorrect; construction-to-permanent loans are typically closed-end loans, though they can sometimes be structured as open-end. The rule permits separate or combined disclosure for closed-end construction-permanent loans. The option "Only after the final draw" is wrong; disclosures must be provided at application and before consummation, not after funding is complete. The option "Without any finance-charge disclosures" is incorrect; Regulation Z always requires disclosure of finance charges and the APR. Exam tip: Know that Regulation Z offers a choice for these loans: treat as one combined transaction or as separate phases.
Why This Is the Correct Answer
Why this is correct: Regulation Z permits a construction-to-permanent loan to be disclosed with combined disclosures or with the construction and permanent phases treated separately, when the applicable requirements are met. This flexibility under §1026.17(c)(6)(ii) allows creditors to choose the disclosure method that best fits the loan structure, provided they apply the chosen method consistently for all required disclosures. Why the other choices are wrong: The option "Only as an open-end line of credit" is incorrect; construction-to-permanent loans are typically closed-end loans, though they can sometimes be structured as open-end. The rule permits separate or combined disclosure for closed-end construction-permanent loans. The option "Only after the final draw" is wrong; disclosures must be provided at application and before consummation, not after funding is complete. The option "Without any finance-charge disclosures" is incorrect; Regulation Z always requires disclosure of finance charges and the APR. Exam tip: Know that Regulation Z offers a choice for these loans: treat as one combined transaction or as separate phases.
More Origination Questions
Before the team acts on a servicing handoff check, a closing coordinator must address Asset Verification and Reserves. Which response is most defensible?
An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
A construction-to-permanent loan will disburse in 5 draws over 11 months before the permanent phase begins. Which Regulation Z appendix provides a disclosure method for multiple-advance construction transactions?
Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
A construction loan agreement allows advances only after documented completion of specified work. A builder requests the next draw, but no completion evidence has been provided. What should occur?
Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
A construction-to-permanent loan will convert to a substantially higher fully amortizing payment. Which payment is especially important when assessing the borrower's long-term repayment capacity?
A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
A branch manager asks about a loan file because a processor wants to omit known monthly obligations from underwriting. What should happen?
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