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Has anyone heard of any issues with HPMLs regarding the longer, 5 year, escrow requirement, when the loan’s maturity is less than 5 years? i.e. a 3 year balloon? Does that fall under the “Termination of underlying debt obligation” 35(b)(3)1 for repayment, meaning it would be a permissible cancellation reason under 1026.35(b)(3)(i) to only require 3 years of escrow because the loan would payout after 3?
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Obviously if the loan pays off before the end of the five-year period the escrow can be cancelled. I don’t believe that the CFPB envisioned a scenario similar to yours. Under existing rules for HPMLs it is impossible to have a balloon payment on an HPML that has a term of less than seven years without incurring significant liability. Under the new ability-to-repay rules a balloon loan generally will be required to have a loan term of at least five years.
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