Higher Priced Mortgages - Section 35 Requirements

Answered by:

Question:

Relative to the higher priced mortgages that take effect on Oct. 1, it seems that I read that it would be unacceptable to make loans lines of credit or one-year ARMS to avoid compliance with Section 35 of Regulation Z. What are your thoughts about three year fixed rate balloons? It appears that this term along with our pricing will possibly avoid Section 35 requirements.

Answer:

If the pricing meets or exceeds the HPML thresholds, you would have to show (third party) documentation the borrower has the ability to repay the balloon payment, if it comes due within seven years of consummation, from assets other than the equity value of the primary residence.

First published on BankersOnline.com 12/14/09