Is it possible to require principal and interest reductions on a single maturity loan without it becoming an "installment loan"? I know......dumb question but remember it IS Friday and my brain is "fried" by this time of the week!

What's the significance of being able to call the loan a "single maturity"?

I just can't pass this up-was this requested of you from a crazed commercial loan officer??

Well Richard, we want to require some kind of reduction, however, if we put note on payments with a balloon we limit ourself on what rate we can charge or term we renew note for......Balloon notes are subject to Alabama Code 5-19-7..... "Terms of refinancing shall be no less favorable than the terms of the original transaction".

As an alternative, we could do the note as variable rate and it would work, however, management really is not "sold" on that idea. They want the maturity date of the note to match the maturity date of the CD but be able to require reduction of principle.

Hey, wouldn't our life dull if not for these lenders...crazed or not!

Also companies producing Tums, Rolaids, Prilosec, etc.
would go broke.

Bare with me here, if your original loan is secured by a CD at X % over the CD rate, and you refinance the loan at the same rate over the current CD rate at maturity, how are you giving less favorable terms than the original loan?

Dan, have you bared it all and started the weekend already? Do you mean "bear with" you?

No, spell check would not have helped.

Bwest-you left out group counselors and shock therapy!!

My research showed that it must be no more than the original rate...example: if 5% then a renewal must be 5%.....not 2% over rate of CD at that time. That could be disasterous in times of rising CD rates.

Hey, I haven't had to go that far yet but did have to have over $4,000 in tests because they thought the pain in my chest was a heart problem! Thank goodness it turned out to be stress only....went on vacation and sat in the woods with a good book for a week and I was cured! Unfortunantly it is time to do that again, it only works temporarily.

What can I say Al, it's Friday!

Bwest, Indiana has similar language but they are not as strict. As long as we refinance the balloon at our prevaling rates and terms for a similar transaction we are OK, or at least I have yet to be written up for it. Also, we have a disclaimer in very bold type at the top of our balloon notes that states we are under no obligation to refinance the unpaid balance, although we may choose to do so.

Have you contacted the Banking Commissioner's office to seek guidance on proper application of the state law? It sounds like you have a matured loan and a new loan in its place, not a "renewal" (unless state law addresses this level of details.) If the bank is under no obligation to refinance, it's a stretch to characterize any replacement note as a renewal.

Well Richard, you got me curious, so I called our DFI, and guess what, I got 3 different answers from 3 different people. So I am in the process of drafting a letter to the Department Head for an official interpretation.

1. The consumer loan division interprets it in the strict wording of the statute.

2. In the banking division, I spoke to 2 people. They both agreed that an unsecured loan follows the statute. However, one agreed and one didn't that our disclaimer exempts us.

3. In the case of a loan being secured by a CD, one said as long as your "margin" stays the same you're OK, the other said no.

Isn’t it great when you get such goooood guidance from your examiners?

Always be sure to confirm conversations like this with Curly, Larry and Moe in writing so you can hand your notes to the next state examiner.

Believe me, I have their names and the date I talked to them.

In the inquiry I’m preparing to the Department Supervisor, which I have talked to on several occasions and to date he has been most helpful, I will outline our scenarios and our interpretations and ask him the DFI official stand on the issue.