A balloon payment on a California covered loan with a term of less than 5 years is:
Correct Answer
B) Prohibited
Balloon payments are prohibited on covered loans with terms of less than 5 years under CFL §4973.
Why This Is the Correct Answer
Balloon payments are prohibited on covered loans with terms of less than 5 years under CFL §4973.
Why the Other Options Are Wrong
Option A: Allowed with borrower consent
Borrower consent cannot override the prohibition. It applies regardless of agreement.
Option C: Allowed if clearly disclosed
Clear disclosure alone does not cure a prohibited short-term non-amortizing payment schedule on a California covered loan.
Option D: Allowed for loans under $100,000
The loan amount does not affect the balloon payment prohibition.
Memory Technique
CA -> ca-covered-loans-high-cost-consumer-protections
Exam Tip
Covered-loan questions often test the 8-point APR trigger, 6 percent points-and-fees trigger, principal-dwelling scope, Consumer Caution notice timing, ATR, prepayment penalty limits, prohibited loan terms, and remedies.
Common Mistakes to Avoid
- -Using a national baseline answer when California has agency-specific DFPI or DRE requirements
- -Confusing CFL, CRMLA, covered-loan, usury, servicing, and DRE endorsement rules
- -Relying on legacy California state-exam or education assumptions instead of current NMLS source pages
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