PM19.3 asks whether an Applicant offers covered mortgage loans that include balloon payments, i.e., a payment that is more than two times a regular periodic payment. If yes, the Applicant must indicate:
- PM19.3a: whether the covered mortgage loans meet the criteria set forth in 12 CFR §§ 1026.43(f)(1)(i)-(vi);
- PM19.3b: whether the Applicant renews the loan at the time the balloon payment is due and if so whether the new loans retain the original amortization period; and
- PM19.3c: if the Applicant renews the loan at the time the balloon payment is due, whether the Applicant (as permitted by regulation) waives the need for a new appraisal and limits application and origination fees.
If the Applicant responds “Yes” to each of the questions PM19.3a through PM19.3c, it will be determined to meet the relevant standard for responsible financing practices.
If the Applicant responds “No” to any of the questions PM19.3a through PM19.3c, in order to demonstrate eligibility, it must describe in PM19.3d how such loans are advantageous to the borrower, any additional protections that limit potential harm to the borrower, and why the loan should be considered consistent with an acceptable community development mission.
In addition to the community development purpose and the borrower benefits of the relevant loan product, examples of the types of information the Applicant could provide to support such an explanation include, but are not limited to:
- The rates, terms, and conditions of the relevant loan product(s).
- Whether the credit risk of the loan product is retained by the Applicant or transferred (e.g., through sale of the loan product).
- Any protections that mitigate potential harm to consumers of the loan product (e.g., those that support borrower affordability and successful repayment of principal, interest, and fees in a reasonable time frame, minimize the cost of refinancing the balloon payment, or avoid immediate collectability in the event of default).
- Any evidence that consumers are not harmed (e.g., the rate of successful repayments under the original rates, terms, and conditions of the product).
- In addition:
- If the Applicant responded “No” to PM19.3a, in addition to the community development purpose of the covered mortgage loan product, it should include in its narrative which of the criteria in 12 CFR §§ 1026.43(f)(1)(i)-(vi) it does not meet and provide an explanation.