A real estate agent in New Orleans is helping a buyer who is financing a home purchase. The buyer's lender has classified the loan as a high-cost home loan under Louisiana's Predatory Lending Law. The lender proposes to include a balloon payment due 36 months after origination. The loan term is 30 years. Under La. R.S. 9:3578.1 et seq., which of the following best describes the validity of this balloon payment provision?
Correct Answer
B) The balloon payment is prohibited because Louisiana's Predatory Lending Law restricts balloon payments in high-cost loans with terms exceeding a specified minimum period
Louisiana's Predatory Lending Law (La. R.S. 9:3578.1 et seq.) restricts balloon payments in high-cost home loans. Specifically, the statute prohibits balloon payment provisions in high-cost loans where the loan term is longer than a specified minimum (generally, a balloon due before the loan would otherwise mature is restricted). A balloon payment due in 36 months on a 30-year loan is a classic predatory feature because it forces the borrower to refinance or face default at a time when they may not qualify for new financing, potentially at even worse terms. Disclosure alone (such as on a Loan Estimate) does not make a prohibited term permissible.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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