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#475376 - 12/28/05 02:58 PM Balloon Mortgage Underwriting
Bagweaver Offline
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Joined: Nov 2005
Posts: 2,409
SW GA
Does anyone have as a part of their underwriting policies specific criteria for consumer balloon mortgages taking into account possible future events such as increase in interest rate at maturity, income changes, real estate values, etc.

We have some board members who feel that borderline qualifying applicants should be futher underwritten based on the above variables.

Any thoughts also will be greatly appreciated.
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Lending Compliance
#475377 - 12/29/05 03:49 AM Re: Balloon Mortgage Underwriting
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 77,659
Galveston, TX
I am not familiar with Georgia law, but some States have specific rules governing balloon mortgages and what you can and cannot do. Some also specifically address what may be considered predatory underwriting practices when dealing with balloon mortgage loans. I would start there.
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#475378 - 12/29/05 02:28 PM Re: Balloon Mortgage Underwriting
Bagweaver Offline
Diamond Poster
Joined: Nov 2005
Posts: 2,409
SW GA
Why would this be considered as possible predatory lending? The bank is a savings bank and is just very conservative in its underwriting.

I'm looking for how other banks may approach justification of approving close to borderline qualifers. We could close most of these as 30 year loans for the secondary market, but offer this as an option to customers. Some would not qualify for secondary market and this may be the only option. These balloons are closed to normally mature in 5 to 10 years.

Any assistance would be breatly appreaciated. Thanks
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#475379 - 12/29/05 02:38 PM Re: Balloon Mortgage Underwriting
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,465
Bloomington, IN
Quote:

Why would this be considered as possible predatory lending?




The balloon will come due in 3 years. You know there is no way the borrower will be able to pay the balloon without refinancing and if they don't qualify for refinancing they have the possibility of losing their home. So you are either putting them in a continuous refinancing loop (if renewed as another balloon) or you put them in jeopardy of losing their home.

Check your state law as Randy advised. IN has some limitations on balloon notes and I'm sure your state also has some rules governing balloon notes. Wasn't GA pretty strict on their predatory lending laws when they were passed and revised?

You may not have any concerns after checking the state requirements, but you need to check them to be sure.
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