Question & Answer

Question: Now for my second question. How should we disclose a term, such as the interest rate, that is not exactly within the customer's or the bank's control? For example, the rate for the permanent phase of a construction/permanent loan will be set based on the rates then in effect but no more than a specified amount.

Answer: The easiest way to disclose this loan is to disclose the construction phase and the permanent phase separately, making two disclosures. You can also do a single disclosure being careful to show all of the payment streams, the dates of those payments, and identifying estimates wherever estimates must be used. In addition, you should disclose the conditions that will be used to set the rate of the permanent loan.

Basically, the disclosure for the permanent loan should be provided when the consumer becomes legally obligated. If at closing for the construction loan the borrower also becomes obligated for the permanent loan, disclosures for both phases should be given at that time, whether separate or combined. If you disclose the two phases separately, it is a good idea to redisclose before the permanent phase simply to give the customer correct current information.

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 18, 12/97