Hello BOL Community,

I am looking for some support of my view on a topic that is being discussed at my bank. Currently my lenders assistants are hesitant to write the below notes because they believe that the borrower is required to be able to completely satisfy the balloon upon maturity.

3 year Balloon Amortized at 15 years
5 year Balloon Amortized at 15 years

While these loans are sometimes HPML's, they are still allowed provided that we follow the escrow, income analysis, and other rulse provided under TIL. The debate at my bank comes about when my lenders assitants tell me that they cannot do these loans unless the client can cashflow to completely pay off the balloon at maturity. I have searched high and low in Reg Z and the commentary and cannot find anything to support this opinion.

I have seen the CFPB Proposal for changes to HOEPA , but these are only proposals right now. I have also reviewed the Staff Commentary to Reg Z 34(a)(4) that referenced repayment ability, but again, cash flow for the balloon payment is never mentioned.

While I understand that HPML loans are generally not preferred, and I agree, this is not the argument. The argument is whether or not law/regulation prohibits the 3/15 or 5/15 unless we can prove ability to satisfy the balloon.

Again, I don't like these loans either and am a big fan of prudent underwriting standards but I just need to know if I am missing something in the regs that specifically prohibits 3/15 and 5/15 loans.

If I am wrong, I would absolutely appreciate a reference.

Let's hear it!

Read this:

http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm

Good play Randy!

I hadn't seen that one. So, while still risky and obviously discouraged, these loans can still be made as long as we have prudent underwriting and are able to verify refi or repayment ability of the balloon without considering the collateral as a source.

Thoughts?

That is the way my banks treat it. They have all continued to do 3 to 7 year balloon loans without problems.

Thanks again.