But sometimes balloon payments can ruin borrowers who do not have a rising stream of income and who are unduly influenced by the lower short-term cost of a balloon note.
Currently, balloon payments are prohibited for HOEPA-covered loans having maturities of less than five years.
For example, a consumer may not understand that a loan with affordable monthly payments will not amortize the principal or that the consumer may have to refinance a balloon payment at additional cost.
Of all of the provisions in section 2 of the bill, the substantive limitations on balloon payments, negative amortization, and prepayment penalties seem particularly focused on the problems associated with high-cost mortgages.
When the "dust settles," these borrowers may find that they have paid a high number of loan origination and broker points (often financed in the borrowed amount) and have agreed to a loan with an interest rate at the highest levels in the market--sometimes with monthly payments that even exceed their monthly income and often with a balloon payment due.
Approximately 62% of the pool balance is composed of balloon payments.
Fitch also assessed borrower and balloon payment concentrations over the life of the transaction.
Due to high balloon payments relative to current residual values and low new vehicle prices, turn-in rates are expected to be very high.
Each of the transactions contain varying percentages of retail level pay loans, balloon payment loans and deferred payment loans.
An attribute of both balloon payment loans and deferred payment loans is that loan amortization is slower relative to level pay retail loans.
Factors that could cause actual results to differ materially from Crescent Operating's expectations include, among others, the ability of the Company's segments to continue to achieve operating results at or above current levels and at a level sufficient to meet current projections, Crescent Operating's ability to service existing debt and meet other operating expenses, the availability of debt and equity financing, and the possibility that Crescent Operating's outstanding debt (some of which requires so-called balloon payments
of principal) may be refinanced at higher interest rates or otherwise on terms less favorable to Crescent Operating, and other general risk factors.