Great discussion in here.
I wish I would have searched the FDIC manual for this long ago.
It would have been much easier than arguing using language from the preamble to a proposed rule that never was implemented.
"To avoid long-term interest rate risk, some creditors that hold loans in portfolio will structure mortgage transactions as short term balloon loans, which they modify shortly before the balloon comes due on the note. The modification may include an increase in the consumer’s interest rate, but may not be a refinancing under current Regulation Z. Some creditors may provide TILA disclosures in these circumstances, but they need not do so,
and the protections in § 226.35 for higher-priced mortgage loans do not apply."