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Presumption of Compliance Protection

Answered by: 
David A. Dickinson

Question: 
With the Fed clarifying that balloon mortgages under seven years are still allowed, as long as the lender uses prudent underwriting, this still does not give back the presumption of compliance protection, correct? An individual borrower could bring suit against the lender for harm, right? In order to regain the presumption of compliance protection, would a bank need to offer a seven year plus balloon term?
Answer: 

You are right. The FRB clarified that you can make loans with balloons of less than seven years, but you won't have the presumption of compliance. This means that if the borrower believes he has received an inappropriate loan, he can sue the lender. Only time will tell the likelihood and damages.

First published on BankersOnline.com 3/29/10

First published on 03/29/2010

Filed under: 
Compliance
Filed under compliance as: 
FRB
Loans

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