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Non-Amortizing Feature/Balloon Payment

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  • #13100
    tressa
    Participant

    Would a single pay loan (one principal payment due at maturity) with monthly interest payments be considered a “balloon payment” under the new HMDA rules?

    #13107
    jholzknecht
    Keymaster

    Section 1003.4(a)(27) requires the LAR to indicate whether or not the loan has a balloon payment as defined in Regulation Z 1026.18(s)(5)(i). That section of Regulation Z defines a balloon as a payment that is more than two times a regular periodic payment. Since your regulation payment is interest only, the final payment apparently will be a balloon payment.

    #32288
    jsevers
    Participant

    Hoping for some assistance.
    We have a Bridge loan product that is 12 months interest only with a balloon payment at the end of the term. Upon review of the consummated file (closed April 20) it was discovered that the balloon feature was omitted from the Loan Estimate and Closing Disclosure under the Loan Terms section on page 1. The closing documents do reflect a balloon payment feature and amount which was executed by the borrower. My initial thought is to provide a post consummation CD. I am hoping you could provide guidance on whether or not there are any additional consequences to this omission.

    If you could also provide any sources or commentary regarding this issue. I am having difficulty finding a resource.

    #32291
    jholzknecht
    Keymaster

    We need to better understand your transaction.

    You mention that the balloon was not included in the Loan Terms. Did it appear in the projected payments section on page 1? Was the balloon reflected in other disclosures, such as “In 5 years” on page 3?

    Which “closing documents” included the balloon?

    Did you use the same origination system to prepare the LE, CD, and the closing documents?

    It is not clear whether a post closing disclosure will resolve any of the issues.

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