Processing Construction Loans in Encompass – Part II

This blog is the second in the series of blogs about Processing Construction loans in Encompass. Follow the URL below the read the first part of this series of blogs:

Processing Construction Loans in Encompass – Part I

Benefits of Separate Disclosures:

• Detailed breakdown: Separate disclosures provide a more granular view of loan terms for each phase (construction and permanent) compared to blended disclosures.
• Complex scenarios: They cater to intricate loan structures like ARM-to-ARM conversions, which might not have enough space in blended disclosures.
• Separate rate locks: If your company uses distinct rate locks for construction and permanent phases, separate disclosures are the way to go.

Encompass Configuration for Separate Disclosures:

1. Loan Program and Template Creation:

   • Evaluate the construction loan scenarios you’ll support and the products you’ll offer.
   • Create new loan program templates specific to construction loans with separate disclosures.
   • Develop new closing cost templates for each unique loan type to accurately represent the costs associated with both phases.

2. Data Templates and Purpose of Loan:

   • Review existing data templates and update them to align with your company’s construction loan policies and the latest Encompass functionalities. If needed, create new data templates for additional loan types.
   • When creating data templates, ensure the “Purpose of Loan” field is set correctly:
     • Construction-only: “Construction” checkbox.
     • C-to-P (separate disclosures): “Construction” and “Construction Perm Disclosed Separately” checkboxes (both selected).

3. Linked Loan Files:

   • Unlike blended disclosures, separate disclosures require two loan files in Encompass:
     • Primary loan file: Represents the construction phase.
     • Auxiliary loan file: Represents the permanent phase.

4. Linking Loan Files:

   • The primary loan file can be linked to a new or existing permanent loan file using the “Construction Management” form. Encompass administrators can set up “Sync Templates” to automatically synchronize specific data between the linked files.

5. Processing and Disclosures:

   • Use the primary loan file for everything related to the construction phase, including loan processing, eConsent for electronic disclosures, generating initial disclosures (Loan Estimate) specific to construction, and closing documents.
   • Use the auxiliary loan file for the permanent phase, including loan processing, generating the permanent phase Loan Estimate and Closing Disclosure.
   • Utilize the synchronization functionality to manage data consistency and avoid discrepancies between the files.

6. Redisclosure Process:

   • If a situation necessitates redisclosure, record it in the relevant loan file (where the change occurred). Encompass will then handle redisclosing both files and synchronizing the Disclosure Tracking history accordingly.

Creating a Construction-Only Loan File (Primary Loan):

1. Initiate a new loan file (New Blank Loan or construction loan template) in Encompass Pipeline.
2. Create the loan file following your company’s guidelines for the construction phase. Fill out standard forms (Borrower Summary, 1003) with construction-specific details. Allocate all finance charges and fees towards points and fees in this phase.
3. Access the “Construction Management” form.
4. Set the “Purpose of Loan” to “Construction” and select the “Construction Perm Disclosed Separately” checkbox. This unlocks the “Construction Only” section and the “Linked Loans” tab.
5. In “Additional Details,” choose how principal prepayments or excess funds affect payments.
6. In the “Construction Only” section, enter the term and due-in months for the construction phase. Specify the amortization type (“Fixed Rate” or “ARM”) and complete relevant details.
7. (Optional) Link the construction loan file to the permanent loan file using the “Linked Loans” tab (refer to the guide for details on linking and synchronization).
8. Utilize the linked loan tabs to compare and edit data in both files. Use the “Go to Perm” button to switch to the permanent loan file for data entry specific to that phase.
9. Utilize the “Project Data” tab to manage construction milestones, pre-closing requirements, disbursements, vendors, and borrower designee information.
10. Complete remaining Encompass forms and tools for both loan files.
11. In the construction loan file, order credit, appraisal, and other necessary reports.

Linking Construction and Permanent Loan Files:

• Loan files can only be linked before sending disclosures for either loan. Once linked, they cannot be unlinked.
• Access the “Linked Loans” tab on the construction loan’s “Construction Management” form. There are two options:
  • Linking to a new permanent loan: Click “New Perm” to create a new permanent loan file. Optionally choose a synchronization template and confirm the synchronization option. The new permanent loan is linked

Looking for more information on construction loans in Encompass input forms or need help with implementing any technology solution within Encompass, leave us a message.

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