Construction Loans & Reg B Monitoring Information

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Question:

When is monitoring needed on a construction loan according to Reg B? Is the absence of a takeout letter indicative of a construction permanent loan? If we don't do takeout letters should we obtain monitoring information on all our construction notes or must the application itself indicate an intention by the applicant to receive long term financing?

Answer:

A construction only loan is exempt from the collection of GMI under Reg B, however, a construction permanent loan is not exempt. Whether your loans are construction only or construction permanent loans is dependent on your policy and procedures. With very few exceptions all of our construction loans are construction permanent loans. We approve them for both the construction period loan and the end financing loan. If we cannot qualify them for the end financing we will not make the construction loan.

First published on BankersOnline.com 3/10/08