Term of Balloon loan ?

I'm a little confused regarding Small Creditor Balloon Loans....
Under the ATR guidelines, if the loan term is less than 61 months, you must include the balloon payment in the monthly calculation
Under the QM guidelines, the term can actually be 5 years.

So, I just want to make sure I have this correct. For Small Creditor balloon loans, can we have a term of 5 years instead of 61 months and not have to include the balloon payment, and still have a QM loan, assuming we meet the other restrictions for that category. The confusing part is that under this scenario, it doesnt meet the ATR guidelines of 61 months but I thought that if you make a QM loan you are presumed to meet the ATR standards.

Five years from the first regular payment date. A 61 month loan is not referred to anywhere in the regulations.

I've been pondering this too.

General ATR says consider highest payment in the first five years after the first payment is due.

QM just says loan term must be five years or longer and doesn't mention "after the first payment".

Without going into a ton of research time, I believe the following from the final rule mumbo jumbo covers it:

For the reasons discussed by the Board in the proposal, and described above, the Bureau
has determined that five years is an appropriate time frame for determining the ability to repay
on balloon-payment mortgages that are not higher-priced covered transactions. However, for the
sake of uniformity and ease of compliance with the qualified mortgage calculation and ability-torepay
calculation for non-qualified mortgage adjustable-rate mortgages, the proposed provision
has been changed to state that the five years will be measured from the date of the first regularly
scheduled payment, rather than the date of consummation.

That piece is comparing payment determination for non-HPCT balloons to the payment determination for ARMS and saying they want uniformity with that.

The QM balloon piece just says the loan term can't be less than five years. It is not referring to any payment determination, just a term restriction.

If I am wrong on this and a regulator finds it, what section are they going to cite me on?

Randy, I do get the 61 months is not technically stated anywhere, but if you take the terminology used in the ATR rule, 5 years from 1st payment date for us results in a 61 month maturity instead of 60 months or 5 years.

It doesn't seem to me that the ATR rule on this is uniform with the QM side for Balloons with as dblack also noted only states a term 5 years or greater, whereas the ATR rule states the term to be 5 years from 1st payment date which equates to 61 months.

I see what you are saying...they exclude (iv) from the criteria...However, I'm not about to dicker over that issue in defending whether it's a QM balloon or not based on 1 or 2 months additional term. I'd rather be safe than sorry on that one I think.

I could care less about the regulators...I'm more concerned with a ruthless attorney.

I agree RR Joker. We have a 5 year balloon product however that I don't want to mess with unless necessary. We also had a 3 year that of course went by the wayside. I just don't know if I need the 5 year product to be exteded to a 61 month product.

I agree with you on that (just do 61+ months to be safe) and we aren't doing them anyway.

Just an inconsistency that has bugged me.

Edit I was responding to Joker..

In the end I would probably add a month to be on the safe side. However I do think there is validity to the argument if you wanted to go 60 months, but is it really worth it to chance it?

Let's think about what shopgirl is actually asking. Your ARM isn't a 5 year balloon/term. It's the payment change date. In that case, you use the highest payment in 5 years from 1st payment date, so to me, you do have a valid issue based on how the regulation is written.

I've directed our lenders to do 62 month loans - just in case one or two have 45 days from the loan date to the first payment date. Trying to cover as many of the bases as I can.

We are too, skittles.

Same here.

Okay, well maybe that's what we need to do then, i.e. just extend to 61 or 62 months. Although, QM status under balloons only requires minimum term of 5 years.....sorry I keep going back to that don't I? Ha. Thanks to all of you for your input.