A construction-to-permanent loan uses separate disclosures for its two phases. Where should an inspection and handling fee attributable to staged construction advances be disclosed?
Correct Answer
D) In the construction phase to which the staged-disbursement service relates
Why this is correct: Inspection and handling fees for staged construction advances should be disclosed in the construction phase to which the staged-disbursement service relates. This follows the principle that fees for a specific loan phase must be disclosed within that phase's disclosures. For a construction-to-permanent loan with separate disclosures, this ensures transparency about the costs directly tied to the construction disbursement process. Why the other choices are wrong: The option "Only in the permanent phase" is incorrect because shifting construction-phase fees to the permanent phase misrepresents when and why the costs are incurred. The option "Nowhere because construction fees are never disclosed" is wrong; Regulation Z requires disclosure of all finance charges and fees paid to the creditor or a third party. The option "As property taxes" is incorrect because inspection fees are service charges, not ad valorem property taxes levied by a government authority. Exam tip: When fees are for a specific phase, disclose them in that phase. Don't shift or hide them.
Why This Is the Correct Answer
Why this is correct: Inspection and handling fees for staged construction advances should be disclosed in the construction phase to which the staged-disbursement service relates. This follows the principle that fees for a specific loan phase must be disclosed within that phase's disclosures. For a construction-to-permanent loan with separate disclosures, this ensures transparency about the costs directly tied to the construction disbursement process. Why the other choices are wrong: The option "Only in the permanent phase" is incorrect because shifting construction-phase fees to the permanent phase misrepresents when and why the costs are incurred. The option "Nowhere because construction fees are never disclosed" is wrong; Regulation Z requires disclosure of all finance charges and fees paid to the creditor or a third party. The option "As property taxes" is incorrect because inspection fees are service charges, not ad valorem property taxes levied by a government authority. Exam tip: When fees are for a specific phase, disclose them in that phase. Don't shift or hide them.
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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