TILA-RESPA Integrated Disclosure (TRID) Requirements

Yes, the TRID disclosures are required for closed-end, consumer-purpose construction loans secured by real property. However, whether they would be required when you extend the term of an existing loan depends on the language you use in the extension agreement.

TRID disclosures are required for existing loans only when they are “refinanced,” which Regulation Z treats as a new transaction. The general rule is that a “refinancing” occurs only when an existing obligation is “satisfied and replaced” by a new transaction, which is determined by the language in the parties’ contract, as well as applicable state law.

On the other hand, “extensions, renewals and modifications” of existing loans are not treated as new transactions by Regulation Z and do not require new TRID disclosures.

There are several court decisions that indicate when a transaction might be treated as an extension, rather than a refinancing. For example, one federal court in Illinois reviewed the language of a modification agreement and determined that it did not constitute a refinancing because the modification agreement stated that it was merely amending and supplementing the original loan agreement and not satisfying or releasing the existing obligation. If an extension agreement merely amends and supplements the original loan agreement, without satisfying or releasing the loan obligation, we do not believe it would be considered a refinancing, and new TRID disclosures should not be required. 

Home Mortgage Disclosure Act (HMDA) Requirements

Construction-only loans secured by residential real estate generally are not HMDA reportable. The HMDA does not require financial institutions to report data on temporary financing, including construction-only loans that are designed to be replaced by permanent financing at a later date. This will not change when the 2015 HMDA final rule takes effect on January 1, 2018.

Additionally, the HMDA only requires reporting of loan refinancings, not loan extensions. Following the above analysis, if the extension agreement does not constitute a refinancing, HMDA reporting would not be required.  

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.19(e)(1)12 CFR 1026.19(f)(1)(i) (The TRID Loan Estimate and Closing Disclosure must be provided for “a closed-end consumer credit transaction secured by real property, other than a reverse mortgage subject to § 1026.33 . . . .”)

• CFPB, Know Before You Owe [TRID] Disclosures and Construction Loans (January 2016) (“Construction Loans Are Covered by the Know Before You Owe Mortgage Disclosures. Most construction loans that are closed-end consumer credit transactions secured by real property are covered by the Know Before You Owe mortgage disclosures.”)

• Regulation Z, 12 CFR 1026.20(a) (A “refinancing” occurs when “an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer.”)

• Official Interpretations, 12 CFR 1026, Paragraph 20(a), Comment 1 (“A refinancing is a new transaction requiring a complete new set of disclosures. Whether a refinancing has occurred is determined by reference to whether the original obligation has been satisfied or extinguished and replaced by a new obligation, based on the parties’ contract and applicable law. . . .”)

• Rodriguez v. Chase Home Finance, LLC, No. 10 C 05876 (N.D. Ill. Sept. 23, 2011) (“Here, Rodriguez’s Modification Agreement states that it ‘will amend and supplement (1) the Mortgage on the Property and (2) the Note secured by the Mortgage. . . .’ In short, because the Modification Agreement merely modifies the previous loan rather than cancelling the loan and creating a new obligation, Rodriguez's modification does not constitute a ‘refinancing.’”)

• Regulation C, 12 CFR 1003.4(d) (“A financial institution shall not report: . . . (3) Temporary financing (such as a bridge or construction loans; . . .”)

• Official Interpretations, Regulation C, 12 CFR 1003, Paragraph 2 (Home Purchase Loan), Comment 5 (“Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered ‘temporary financing’ under Regulation C and is not reported.”)

• (As effective January 1, 2018) Official Interpretations, Regulation C, Paragraph 2(j), Comment 3 (“Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. A home purchase loan does not include a construction-only loan that is designed to be replaced by permanent financing at a later time, which is excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comment 3(c)(3)-1 provides additional details about transactions that are excluded as temporary financing.”)

• (As effective January 1, 2018) Official Interpretations, Regulation C, Paragraph 2(D)(2), Comment 2 (“In general, extension of credit under § 1003.2(d) refers to the granting of credit only pursuant to a new debt obligation. Thus, except as described in comments 2(d)-2.i and .ii, if a transaction modifies, renews, extends, or amends the terms of an existing debt obligation, but the existing debt obligation is not satisfied and replaced, the transaction is not a closed-end mortgage loan under § 1003.2(d) because there has been no new extension of credit.”)

• (As effective January 1, 2018) Regulation C, 12 CFR 1003.2(p) (“Refinancing means a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an existing, dwelling-secured debt obligation by the same borrower.”)