One addresses balloon payments; the other addresses single-premium credit insurance.
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.
The report discusses possible ways to control flipping, including additional limitations on balloon payments and the ability to finance closing costs for loans subject to the HOEPA.
The Board and HUD join in two recommendations to protect consumers who obtain HOEPA-covered loans; one addresses balloon payments, and the other addresses single-premium credit insurance.
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.
The balloon payment
portion makes up 38% of the initial underlying portfolio.