Topic: Balloon Loans
-
We qualify as a small creditor under the Qualified Mortgage (QM) rules, but we are not located in a “rural or underserved area.” We do make portfolio balloon loans that qualify for the small creditor balloon QM exemption, but that expires on April 1st of this year. After that date, can we continue to make balloon mortgages? Do you recommend not offering balloon loans and instead offering adjustable rate mortgages?
—
by
We believe you may continue offering balloon loans that pass an ability-to-repay (ATR) analysis. However, your balloon loans will not qualify as QMs after April 1, 2016, unless you qualify for the “rural or underserved” exception to the QM requirements (which may be subject to change, as discussed below). As you suggested, an ARM loan…
-
Aside from ATR or QM issues, is there a state law that requires us to execute balloon loan renewals, extensions or modifications before the loan’s original maturity date?
—
by
No, we do not believe that you are required to enter into a renewal, extension or modification before the loan’s original maturity date. Regulation Z distinguishes a “refinancing,” which could require a new set of disclosures, from other transactions, such as renewals, extensions and modifications, which do not require new disclosures. The general rule under…
-
Are we required to fill out a Loan Estimate for a bridge loan to purchase a new home? The loan term would be one year – 11 months interest only, with a final balloon payment. The loan would be secured by the borrowers’ current residence and the purchased property. On the Loan Estimate, what should we disclose as the Property, Property Value, Purpose, and Product?
—
by
Yes, the new Loan Estimate is required for every “closed-end consumer credit transaction secured by real property,” including bridge loans. Property: The Loan Estimate should list both property addresses, because both properties secure the transaction. The Official Interpretations to Regulation Z state that “where more than one property secures the credit transaction, § 1026.37(a)(6) requires…
-
Does Illinois law prohibit interest-only residential mortgage loans?
—
by
No, we are not aware of any Illinois law that generally prohibits interest-only residential mortgage loans, although there is a state requirement that operates to sometimes prohibit such loans. If the mortgage loan triggers the definition of “high risk” in the High Risk Home Loan Act, that law prohibits an interest-only feature that results in…
-
We are acquiring an institution that has three-year balloon loans. We would like to modify the notes by extending the balloon term to five years and changing the interest rate. Will new GFEs be required, or can we treat this as a modification?
—
by
While we can provide you with some guidance on determining whether these changes will be considered a refinancing, the issue is very fact-specific, and absent more facts, we cannot advise as to whether a specific balloon loan term or interest rate change would be considered a modification or refinancing (the latter requiring new TILA and…
-
We would like to renew our balloon loans that are maturing soon by raising the interest rates and extending the loan terms to thirty years. Do we need to treat these as refinances?
—
by
While we can provide you with some guidance on determining whether a renewal will be considered a refinancing, the issue is very fact-specific, and we cannot advise as to whether a specific balloon loan modification would be considered a refinancing (subjecting the transaction to Regulation Z and the new ability-to-repay (ATR) requirements). The general rule…