No, the FDIC is sticking with the interpretation for now and they (the Washington office as I understand it) has requested HUD to issue a FAQ to clarify what should be put in that section.

If you're a FDIC regulated financial institution I again strongly urge you to make your opinions known to HUD concerning this issue.

I'm FRB...I misunderstood the info above, apparently! Thanks for clarifying, Dan...I sure hope HUD does not make a rash comment and turn "term" into "amort"...to me, that's a travesty!

Just keep in mind the FDIC has rendered this opinion based on "previous information they received from HUD". I did not inquire further on that comment.

To the best of my knowledge the FDIC is the only regulatory agency taking this stance but it might not hurt to see how your agency is interpreting this.

I'll ask and report back!

Ok, reporting back with the same conclusion as the FDIC. Commentary follows:

Another question. The FDIC has taken the stance that they believe on the new GFE that if you have a balloon loan (and I consider a balloon loan anything that has a maturity that differs from the amortization period, such as a 5 yr loan/30 yr amort) you should enter the amortization period in the “term” section, and only reflect the balloon term in the balloon payment section. This makes no sense to me and, at least in my opinion is misleading.

The terms “term” and “amortization” are two entirely different things. The maturity is the loan term. What is the FRB’s stance on this?

Thank you.


Reply from FRB ATL:

Based on what I found that's what's required in the event of a balloon loan. The amort term. (As confusing as that sounds) Its assumed that its cleared up with the balloon question at the bottom of the summary of loan section.

Loan Term – Based on the fact that balloon loans are addressed within this section separately, can you assume this loan term on a balloon loan is the amortized period versus the balloon payment period? There is no clarity contained within the instructions regarding this term; however, since the balloon scenario is covered below it, one could assume the amortized term rather than the balloon term would be warranted here in this section.

What if there is no amortization??

I just had a supervisor ask that very question...such as an interest only loan? To me, that falls outside of this question. An interest only loan, would not be a true balloon, but rather a term loan. I believe we will have to change our disclosure of a "balloon" on those loans since they are not amortized in any way. They just mature in 12 months and you owe the principal balance at that time. Sound about right?

FWIW, and you can see from the FRB reply...it sounds odd to them too to do it the way HUD wants it, but they are simply the enforcer and we are the servants...right?

Dan –

The Office of RESPA and ILS believes that the term stated in the note should be disclosed in the “Your loan term is” line in the “Summary of your loan” box on page 1 of the GFE and on the HUD-1 on page 3. The monthly payment that results from the amortization period and the balloon due date are disclosed elsewhere in the “Summary of your loan” box on the GFE and HUD-1 forms. The Office of RESPA and ILS believes that it would be confusing to disclose the amortization period when the question clearly asks for the “loan term.”

Please call or email with questions.

Thanks –

Andrew

Andrew Fay
Department of Housing and Urban Development
Office of RESPA and Interstate Land Sales
Supervisory Investigative Coordinator
202.708.0502 (phone)
202.708.4559 (fax)
www.hud.gov/respa

Thank you Dan for posting this. Do you think they have communicated this to the FDIC yet? I spoke to an examiner last week and they are still being told that the amortization period goes there.

Funny you should ask. Here's the reply I just received after copying the above response to my FDIC contact. In the reply RO = Regional Office and WO = Washington Office.

Hey Dan,

Who is this guy? What is a Supervisory Investigative Coordinator?

Just last week we received correspondence from our RO through our WO that they have had communications with HUD again and confirmed that the amortization of the loan is what they require in that spot. HUD appears to be telling us one thing and you another????? (emphasis added by me)

I will reiterate that this is not an examiner interpretation - it coming down from our WO with discussions with HUD.


My response:

I have no idea who this person is. It's just the reply I got from copying my previous email to you to the HUD FAQ email at HSG-RESPA [HSGRESPA@hud.gov].

I just thought this might be helpful to share with the appropriate people within the FDIC that are corresponding with HUD.

For those of us that are in the "trenches" it has not been uncommon to get 3 different answers from 3 different people on the same question from HUD. That's is why there is such great confusion among financial institutions.

Right now I'm not sure how to disclose that section should we happen to do a balloon mortgage . 100% of compliance officers across the nation that I've been in contact with agree it should be the loan term vs the amortization period, as do 100% of the documentation software vendors. For us to input the amortization period in that section we are going to have to manually complete every GFE by whiting out that section and re-typing the amortization period instead of the loan term because I can assure you the software companies are not going to change their programming until there is an official release by HUD requiring the amortization period to be disclosed in that section.

It will also cause us great aggravation with settlement agents. They are going to put up a very high wall of resistance in placing the amortization period in the "Your loan term is" block on page 3 of the HUD settlement statement.

For us, for now anyway, it's a moot point because we have not done a consumer balloon mortgage in probably 5 to 6 years. So for now I am going to respectfully bow out of the debate, but I will of course follow to see if there is ever an official "guidance" put out by HUD.

Thanks for your time and I hope the correspondence has been of some benefit.

Dan

well, at least for now we have changed our software to place the amort in the term section and let the balloon section handle the term.

I soooo wish they'd all get their act together on this so we could ALL get on the same page!

I so agree, and it appears the examiners are in the same boat as we are as for as answers being received from HUD; which is just more fuel for the fire that RESPA should be taken away from HUD and given to the FRB.

Dan,

Found this in a response David posted recently...



David Friend is an attorney at HUD pretty high up the food chain, from what I gather. Andrew Fay is his supervisor.

Thankfully I'm not doing balloons either but have been following this just in case. I have nightmares where the fish flopping around on the dock are wearing suits and have HUD name tags on them.

After a couple more email exchanges my EIC reiterated that the interpretation is coming out of the Washington Office and are results of conversations with HUD.

I sent an email directly to the Washington Office, not sure if I came up with the correct email address but I sent it to regs@fdic.gov. That was the only contact information I could find on the Web site. I also copied the Ombudsman. I figured between the two it should get to the right people.

I pointed out the conflicting information we are getting and urged them to reconsider the interpretation through further conversations with HUD and urged an unified opinion be issued.

Now with that I am going to step out of this since as previously mentioned we don't do balloon loans so it's a moot point for us and I have other fish to fry.

I will of course share any reply that I receive. But any further agency contact will be up to you and your financial institution.

David Friend has also said that the term of the loan goes in the "Your loan term is" box. Not the amortization. (Someone in my peer group also asked the question to HUD.)

but...David Friend has also given info in the past that was not accurate, per eventual Q&A's on some topics. Can't remember the exact situation, just remember the fact the opinion wasn't the 'correct' one.

I give up! Is there a padded room nearby?

If you find one and need a roommate...let me know!

FWIW, I just got off the phone with my area examiner (Knoxville out of the Dallas Region). We discussed this at length. He indicated that:
1) The internal "Q&A" he has access to within the FDIC has been removed pending an official answer from HUD.
2) And AGREED that using the amortization instead of the actual term of the note would be misleading and confusing to the customer.

He advised me to continue using the note term until there was a definitive answer from Washington.

Andrew Fay is as high up in the "RESPA chain" as you get. Because I'm on the ABA Committee to develop and update the ABA's RESPA Works, this issue was brought up in our latest meeting. No one on the committee agrees with the Chicago FDIC. In fact, we all think it's absurd for the FDIC to come up with such reasoning.

Rod Alba (ABA) sent an email to HUD and copied all of the committee members on this topic. HUD replied that the loan term is the only thing disclosed (not the amortization period).

I have, once again, submitted this back to the FRB to see if they, also, have changed their mind?!?

My contact also agreed it made no sense, but this had been how they had been directed. UGH!

David, according to the people I've talked to the FDIC reasoning is based on information their Wahington Office has received from HUD and if you look at other posts where posters have talked to thier examiners they are being instructed the same as the FDIC is.

So it looks to me like HUD needs to get their head out their ass and issue an offcial opinion.

agreed. I did send the correspondence up above from Andrew Fay to my guy at the FRB so he can take it further up the chain for more clarification and response back to me.

I'm so sick of saying one thing, then changing it, and now probably will end up in the position to change it right back to the way we've done it from the start...

geeee whiz.....that's as PC as I can get and NOT what actually ran through my mind!

Joker, I think Dan said it best for all of us.

David, if you have Andrew's ear, maybe you could put a couple of the other pita RESPA issues in front of them and tag Dan's suggestion on them? Just askin'.....