I've read this stuff so much until it makes my head swim!

Question: In the Small Entity Compliance guide on page 35, top bullet point it says "the balloon-payment QM calculation excludes the balloon payment even if the loan is a higher-priced loan".

Am I understanding that to say that when "we" as a small creditor make a balloon loan if the loan is an HPML then we don't have to include the balloon payment in the DTI calculation?

Thanks!

So long as it's a QM, which also means your balloon is 5 years or longer from first payment date and no longer am than 30 yrs.

Yep and that's where we run into a little problem!! We won't have a lot of QMs I don't think.

However, lds, I believe that if is an HPML you lose the QM status.

I think that's where the 3.5% comes in.

On this subject of small creditors, when making balloon loans can the loan have a 5 year term (60 months) or does it need to be 61 months so that we don't have to include it in our ATR calculation?

Just found the answer in another thread.

The count begins at first payment, not origination date...so it will be either a 61 or 62 minimum term. This is required for it to fall within a QM exception.

so if our loan is a 5 year balloon, we will have to count the balloon payment into the ratios?

It's not really that simple.

1) what type of creditor are you. Rural/underserved, temp small, etc.

2) ATR rules or QM rules
3) Chances are if it's a 60 month balloon (from origination), yes, regardless.
4) Will the loan otherwise meet QM requirements.

There rarely seem to be straight-forward answers. It's easy for a thread that begins "QM Small Creditor" to morph into something different...so without knowing for sure...to answer a very vague question may be dangerous, at best!

I'm not being ugly...I'm being honest!

We are temp small creditor, QM rules,

My handy dandy Quick Reference Chart from the CFPB states under the small creditor balloon payment QM (temp) that the balloon payment is excluded in the monthly loan payment underwriting method. Now I am wondering.

And I appreciate your honesty. I would never say you are being ugly!

The Temp Balloon QM section doesn't apply to my institution so I haven't studied it like I have the others, but where are you getting that it must be a 61+ month term?

I know under general ATR it says:
(1) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced covered transaction

so I understand the 61+ month there.

The part under QM's says you may have a balloon if:

(iv) The legal obligation provides for:

(A) Scheduled payments that are substantially equal, calculated using an amortization period that does not exceed 30 years;

(B) An interest rate that does not increase over the term of the loan; and

(C) A loan term of five years or longer.


So that makes me think it is not based on first payment date like the other section is.

It is...it's all based on 5 yrs from 1st payment.

JWills, in a nutshell, so long as your loan meets QM requirements, you don't have to count the balloon in your ATR methodology.

Have any fellow LaserPro users figured out a workaround for this scenario since the software won't do the calculations until the next release later this month?

LaserPro user here and in the same boat as you RR Becca. My loan officers weren't happy when I told them that the software wasn't updated to do the calculations that we actually needed. Hopefully it'll be updated as planned and do what we need.

If the loan does not qualify for QM, has a 62 month term, is a HPML but not HPCT, do you then consider the balloon in the ATR review?

In other words, do ATR only loans that are HPML need to include the balloon payment in the DTI calculation?

You would count the balloon payment if it is a HPML

Under General ATR, as long as the loan is not an HPCT, you only count the balloon payment if it is within the first five years after the first payment.

In your example you would likely not have to count it because of the 62 month term.

If this loan was an HPCT you would count the balloon.

HPML status is not a factor in this piece.




(1) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced covered transaction; or

(2) The maximum payment in the payment schedule, including any balloon payment, for a higher-priced covered transaction;

Now I am confused-HPML is higher priced mortage loan, HPCT is higher priced covered transaction?

Right. HPML is defined in Sec. 35. HPCT is defined in Sec. 43.

So I should have said if it is HPCT you would count the balloon payment correct? Thank you for clearing that up.

Right.

Thanks very much! Too many acronyms!

Looking for some insight on this as well. Where is it that the small creditor balloon payment QM is subject to the same 61 months/5 years from first payment?

I don't think it does. I think most of us have erred on the language under ATR so as not to get caught on a technicality.

Thanks RR Joker. I agree with the conservative approach as well.