IBA Compliance Connection

Your go to source for compliance!

We offer higher priced mortgage loans that are balloon loans with a 61-month fixed rate term and an amortization of up to 30 years. Which Federal Financial Institutions Examination Council (FFIEC) table should we use to determine average prime offer rates (Average Prime Offer Rates – Fixed or Average Prime Offer Rates – Adjustable)?

—

by

admin

You should use the FFIEC’s fixed-rate table for the loans you described. The balloon payment at the end of loan term does not change the fact that the loans have a fixed rather than adjustable interest rate.

A fixed-rate mortgage is defined as a transaction secured by real property or a dwelling that is not an adjustable-rate mortgage or a step-rate mortgage. An adjustable-rate mortgage is a transaction secured by real property or a dwelling for which the annual percentage rate may increase after consummation.

Therefore, whether you should use the fixed-rate table or the adjustable-rate table depends on whether the interest rate will increase — not on whether the loan has a balloon payment feature. The interest rate for loans you described will not increase so you should use the FFIEC’s fixed-rate table for assessing the APOR.

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.18(s)(7)(iii) (“The term ‘fixed-rate mortgage’ means a transaction secured by real property or a dwelling that is not an adjustable-rate mortgage or a step-rate mortgage.”)
  • Regulation Z, 12 CFR 1026.18(s)(7)(i) (“The term ‘adjustable-rate mortgage’ means a transaction secured by real property or a dwelling for which the annual percentage rate may increase after consummation.”)