A Texas high-cost home loan sets regular payments that leave $180 of interest unpaid each month, adding it to principal. Does this regular payment schedule violate the state high-cost negative-amortization restriction?
Correct Answer
A) Prohibited: regular payments may not make the principal balance grow
A high-cost home loan may not provide for a payment schedule with regular periodic payments that cause the principal balance to increase. Other choices: disclosure does not permit a structure the section forbids; a 110% cap is a feature of some option payment products and is not an exception here; and no equity threshold turns the prohibition on. Source: Tex. Fin. Code sec. 343.203
Why This Is the Correct Answer
A high-cost home loan may not provide for a payment schedule with regular periodic payments that cause the principal balance to increase. Other choices: disclosure does not permit a structure the section forbids; a 110% cap is a feature of some option payment products and is not an exception here; and no equity threshold turns the prohibition on. Source: Tex. Fin. Code sec. 343.203
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