Just a FYI in case you didn't call in to FDIC Atlanta's Regulatory Conference call today. They stated that for balloon loans you are to put the AMORTIZATION term of the loan in the "You Loan term is ____" box of the Summary of Your Loan section. I know we and many others, including the Bankersonline RESPA webinar materials, had decided the balloon term would make more sense. I guess we'll be changing since we're regulated by Atlanta

For all balloon loans, the loan term on the GFE is the amortized term. The actual due on is disclosed in the balloon section.

I think the FDIC better call HUD, because the term of the loan is the time from the date the note is signed until the maturity date. You are saying that if you make a 3 year balloon note that amotizes over 40 years - you put 40 years in that space. You have got to be kidding me!!!! What do they suggest on interest only loans??

They said a couple things that were different than what HUD advised. The GRMA fee (Georgia Only) for one. HUD says put in block 3 or 7 but FDIC today said put in block one.

I was at the ABA RCC. During the RESPA Panel (which I was on with HUD), the "loan term vs. amortization" issue came up. We all agreed to disclose the term of the loan - not the amortization. There were several examiners in the room and when I asked if any of them had heard to list the time of amortization, not one had heard of this.

David, I have a copy of the power point presentation if you want it. Right there in black and white- third question on slide 6:
"What should be entered in the “Your loan term is” box for balloon notes that amortize beyond the maturity date (the amortization period or loan term)?
The amortization period"

The presenters theory was that the last box in that section of the GFE will give the borrower the balloon information so here is where the borrower needs to know the amortization on which their monthly payment is based.

Well, FDIC Chicago is having a conference call tomorrow. I'll let you know what they say about it.

Putting the amortization would be completely misleading. The term is the time to maturity, period.

What planet did they fall off of?

FDIC Chicago agrees with what Atlanta said - use the amortization and not the term to maturity in the loan term part. They suggested that we ask HUD to clarify this position.

since it sounds like the FDIC had a number of things apparently wrong, right now, I'm going to say this is wrong too! Unless I see that in a Q&A...that is just plain misleading.

We aren't going to make any changes at this point either. I think that it is even a programming change on our document software.

I came close to questioning this but we no longer do balloon loans, haven't for almost 7 or 8 years now, so it was a moot point for us. Also, I know Clark and Judy fairly well so didn't want to push my luck since I most likely will have a compliance exam by the end of the year.....

FWIW I agree with everyone else, the term of the loan is not the amortization schedule of the loan.

I believe you, but they're wrong. They don't get to theorize. HUD writes the rule and RESPA tells us exactly what goes in this blank. The amortization period is not it. It's crystal clear.

Please notify them they are wrong, so this doesn't continue to be a problem for other bankers. You could even cut and paste this thread in an email.

Except that Laura Gipe from HUD opined above that

Laura T. Gipe
RESPA Compliance Specialist

Who are you a RESPA Compliance Specialist for?

And if you are from HUD please provide contact information so that bankers can confirm directly with HUD.

Thanks,

She's from HUD. She is helping me out with another issue.

whoa, West Coast. She is a Regulator. You can check her profile and you'd see her contact is at HUD. She's new to BOL just like you and we're not questioning your credentials.

I would again ask HUD: What do you propose to put in this box if this is an interest only loan? Does that mean an interest only loan has no term? They might also want to refer to current legal definitions for the use of "loan term". If they meant amortization period, that is what they should have said. They are two totally different animals. This should not become one of those cases in which someone came up with the answer that was "wrong" and the whole industry now has to go down with the ship because of it.

I totally agree. As I've said more than once..that is just plain misleading. Amortization and term are not equal. Unfortunately, this whole new concept of disclosure was built around standard mortgage lending. It really isn't too friendly to bank lending for construction loans and short-term-type loans, IMHO. I know we've worked very hard to make all the pieces fit for those types of loans.

Truffle,
I wasn't questioning her credentials, simply asking her to clarify, and potentially provide direct confirmation so that we all can have in writing interpretation on this point, which would appear to be the only thing that is going to resolve this issue.

OK, doesn't look like anyone else took the inititive so here is what I just emailed to the FDIC.

The stance the FDIC has taken that requires the amortization to be disclosed versus the loan term has caused quite a stir in the compliance industry and I have to admit that I agree with those that consider the interpretation to be in error.

In one area you are telling the consumer the term of their loan is for 30 years but in another area you are telling them they must pay the loan in full in 5 years. This is going to cause great confusion for the consumer. What do you tell them, is their loan for 30 years or 5 years?

It has well been an industry standard that the loan term was the period between consummation and the date the loan was due to be repaid. A Google search on "loan terms" will also produce several business definition of loan term concurring with that interpretation.

The following is the definition taken from: http://www.businessdictionary.com/definition/loan-term.html

Period over which a loan agreement is in force, and before or at the end of which the loan should either be repaid or negotiated for another term.

Also if you refer to the help section of the FFIEC rate spread calculator for the questions concerning loan term it will instruct you to input the "term" of the loan, not the amortization period. The following is taken from the Help section: http://www.ffiec.gov/ratespread/newcalchelp.aspx#9

If the amortization period of a loan is longer than the term of the loan – i.e., because the loan has a balloon feature- the lender should use the term when selecting the applicable yield. For example, in the case of a five-year loan that has a balloon payment because the payments are amortized over 30 years, the term of five years must be used.

This is also the interpretation that all major documentation software vendors have taken. In order to put in the "amortization" period in this category will cause major software changes and/or the manual completion of the GFE.

To the best of my knowledge the FDIC is the only one that is interpreting the loan term to mean the amortization period.

I would respectfully request the FDIC reconsider this interpretation.

I am also copying HUD in hopes that they might render an opinion on this matter.

Thank you.

nice job, Dan!

We do not make balloon loans therefore for us this is not an issue but for those of you that do I strongly suggest you get letters out to your Regional Office and to HUD!

If there are any software reps reading this I suggest you do likewise.

The section high-lighted in red was high-lighted in the reply I received.

We have not found specific guidance from HUD on this question. However, in the "Summary of Your Loan" section of the Good Faith Estimate (GFE), HUD has previously indicated to us the loan term should be the amortization period for balloon mortgages. The balloon time period would be disclosed under the balloon section. The rationale appears to be that since the monthly payment is based on the amortization period, this is what the bank should show in the term box. Under the “Does your mortgage have a balloon payment” section, banks should disclose the amount of the balloon payment and when it is due in number of years. The fact that this section covers the length of time when the balloon payment is due would also lend support to disclosing the loan term based upon the amortization period for balloon mortgages. Our Washington office has provided a written request to HUD seeking a Q&A be added to the RESPA FAQ's regarding this issue.

F/U reply from my contact:

No problem. That loan software company has been in contact with us and HUD. The issue is being reviewed, and that is the good thing. I would suggest that you refer your friends to address their concerns with HUD, not the FDIC Regional folks. The FDIC folks at the Chicago Regional level are not involved in decision making for this issue. This issues has been addressed from the highest level in the corp. The Regional and Field people are just working as instructed.

I think they form needs to be changed if they want the am period vs the term in that spot.

However, it sounds like HUD is going to stick with the am period...am I understanding correctly...and that they intend to address this change in a Q&A?