Some second lien loan programs subject to TRID provide for deferred payments during the life of the loan, which life is based not on any separate, fixed period, but upon the extinguishment of a first lien loan extend simultaneously with the second lien loan.
Due to the terms of these loans, no periodic payments exist. Rather, once the date of maturity arrives, the borrower must pay off all simple interest accrued and the principal amount of the payment.
Such a final payment is considered a balloon payment under TRID, since a “’balloon payment’ includes the payment or payments under a transaction that requires only one or two payments during the loan term.” (12 CFR § 1026.37[b]). Because of this, a balloon payment must be disclosed in the “Loan Terms” and “Project Payments” tables of the LE and CD (see Ibid. §§ 1026.37[b], [b], [c][i][B], [c][ii][A] and 1026.38[b] & [c]). In addition, because a balloon payment is considered a “loan feature,” a disclosure concerning it must be included in the “Product” description on pages 1 of the LE and CD (see Ibid. §§ 1026.37[a] & 1026.38[a][iii]).
We will be modifying our standard versions of the LE and the CD accordingly. If “Deferral Period Months” (Field 42416) has a value and if “First Principal and Interest Payment Date After Deferral” (Field 42418) equals “Maturity Date” (Field 15368), then the following will be disclosed:
- If “Balloon Indicator” (Field 27621) equals “Yes,” a balloon payment feature will be included in the “Product” description , assuming that no interest only feature is also present (see § § 1026.37[a][iii] for the rules on the hierarchy of features; none of our currently supported deferred payment programs have negative amortization or step payment features).
- The “Monthly Principal & Interest” row in the “Loan Terms” table will not disclose a periodic payment amount (since there are none) and “No” will always print under the column “Can this amount increase after closing?”
- The “Balloon Payment” row in the “Loan Terms” table will be filled out.
- A “Final Payment” column will appear in the “Projected Payments” table, reflecting the final balloon payment.
As a side note, we will also not be printing the AP Table for these types of loans, since the AP Table is only required to appear “if the periodic principal and interest payment may change after consummation” (Ibid. § 1026.37[i]). We are also correcting, for all balloon loans, the language for the balloon payment disclosure in the “Product” description to “Balloon Payment”, rather than just “Balloon”.
These changes will take effect immediately. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.