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We only began reporting Open End Lines of Credit to our LAR this year and need clarification on the Balloon Definition as it may relate to HMDA. Based on the definition found in 1026.18(s) it leads me to believe that we would report “No Balloon Payment” for this type of transaction. However, on our Credit Agreement amongst other definitions references a “Balloon Payment” – Balloon Payment. Your Credit Line account is payable in full upon maturity in a single balloon payment. You must pay the entire outstanding principal, interest and any other charges then due.
1026.18(s)(5)(i-ii)
1. General. A balloon payment is one that is more than two times the regular periodic payment. In a reverse mortgage transaction, the single payment is not considered a balloon payment. A balloon payment must be disclosed outside and below the table, unless the balloon payment coincides with an interest rate adjustment or a scheduled payment increase. In those cases, the balloon payment must be disclosed in the table.(i) Except as provided in paragraph (s)(5)(ii) of this section, if the transaction will require a balloon payment, defined as a payment that is more than two times a regular periodic payment, the balloon payment shall be disclosed separately from other periodic payments disclosed in the table under this paragraph (s), outside the table and in a manner substantially similar to Model Clause H-4(J) in appendix H to this part.
(ii) If the balloon payment is scheduled to occur at the same time as another payment required to be disclosed in the table pursuant to paragraph (s)(3) or (s)(4) of this section, then the balloon payment must be disclosed in the table.
This has always been an awkward question. Section 1026.18(s) deals with closed-end credit. Your transaction is open-end credit. All the same, guidance from 1026.18(s) is used to determine the presence of a balloon payment.
Section 1026.18(s) defines a balloon payment as one that is more than two times the regular periodic payment. In the HELOC rules, Section 1026.40(d)(5)(ii) states, “A balloon payment results if paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time, and the consumer must repay the entire outstanding balance at such time.” The problem is that a transaction may be a balloon under Section 1026.40(d)(5)(ii), but may not be a balloon under Section 1026.18(s). For open-end credit, that requires a minimum payment of 5% of the outstanding balance plus accrued interest or $50, whichever is less. If the full outstanding balance is due at maturity that amount may be a balloon under Section 1026.40(d)(5)(ii), but may not be a balloon under Section 1026.18(s), if the final payment is $100 or less.
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