Balloon Payments - Clarification Needed

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Question:

I need clarification on balloon payments. Are we not allowed to have balloon payments on any loan or does it just apply to HOEPA, high rate high fee loans?

Answer:

You can have all of the balloon payments you want. If the loan is a HOEPA or HPML loan, then balloon payments are under great scrutiny. The regulation does not prohibit balloons of less than seven years, but you're taking on some regulatory and civil risks.

Editor's Note: This FAQ was issued by the Federal Reserve to answer many questions pertaining to balloons and HPML requirements.

First published on BankersOnline.com 3/08/10