A Texas borrower in hardship asks for a 3-month forbearance and the unpaid interest is added to the balance. Under the state provision, is borrower-requested temporary forbearance treated the same as a negatively amortizing regular payment schedule?
Correct Answer
C) Permitted: negative amortization after a temporary forbearance is fine
The prohibition is on a payment schedule of regular periodic payments that increases the balance, and it does not reach negative amortization arising as a consequence of a temporary forbearance, a bridge loan, or a restructure the borrower sought. Other choices: the balance may increase in those situations, so never is too strong; no 3-month ceiling appears in the exception; and no rate reduction is required. Source: Tex. Fin. Code sec. 343.203
Why This Is the Correct Answer
The prohibition is on a payment schedule of regular periodic payments that increases the balance, and it does not reach negative amortization arising as a consequence of a temporary forbearance, a bridge loan, or a restructure the borrower sought. Other choices: the balance may increase in those situations, so never is too strong; no 3-month ceiling appears in the exception; and no rate reduction is required. Source: Tex. Fin. Code sec. 343.203
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