Posted by JM_NY on 6/12/06 10:49pm
Msg #125510

Help

Can some one tell me how on the truth in leading doc it states 360 month with on the last payment there is a balloon payment of the balance of the loan. the Morgage is written for 40 yrs & the note the same. Is there a problem closing this loan? Is there something I don't know? Please help me understand why the broker on the loan yelled at me for not helping the borrower understand the loan. I do not.

Reply by Missy_Lulu on 6/12/06 11:05pm
Msg #125512

As is continually states, it is not the Signing Agents job to sell the loan. It is the broker/lenders job to explain the terms of the loan and to sell their loan, not the Signing Agent's.

Reply by Ndwa on 6/12/06 11:50pm
Msg #125534

Until interest rate stop rising people are still going to trade an arm for an arm. While it's a sad thing, but 40 & 50 yrs ARM on a 30 yrs note are their only reach. You're a notary doing primarily loan closing, it wouldn't hurt to know a little about the type of loans available out there.

I had the same question today. I simply told the borrower he has a 30 yrs term note, but the payment is divided into 40 yrs so there would still be 10 years (balloon) payment due at the 30 yrs maturity date.

I don't think it's a matter of the brokers not doing their job, but the borrower might have a different perspective on who the lender/tc sent to close their loan with the kind of money they're paying.

Reply by REE_NJ on 6/12/06 11:11pm
Msg #125514

There is no problem closing this type of loan. This is a Balloon Loan. The borrower is only paying compound interest for the first several years based upon the terms discussed in the promissory note. These types of loans sometimes arise for borrowers who are trying to get their credit back in good standing - i.e. excessive debt, late payment issues, etc. More than likely, the borrower will refinance in the next two years or so to get out of this type of loan based on what information was provided to them from their lender/broker.

It is not the signing agents job to explain the loan program - this should have been done prior to you attending the closing. You are only there to provide a brief explanation of the document they are signing, show the borrower where to sign and then, you witness and notarize accordingly. If there are any questions relating to the loan terms, we must get the lender/broker on the line to resolve any questions or concerns. We are not authorized to interpret or explain the loan product or even advise when the loan will fund.

Reply by REE_NJ on 6/12/06 11:11pm
Msg #125516

There is no problem closing this type of loan. This is a Balloon Loan. The borrower is only paying compound interest for the first several years based upon the terms discussed in the promissory note. These types of loans sometimes arise for borrowers who are trying to get their credit back in good standing - i.e. excessive debt, late payment issues, etc. More than likely, the borrower will refinance in the next two years or so to get out of this type of loan based on what information was provided to them from their lender/broker.

It is not the signing agents job to explain the loan program - this should have been done prior to you attending the closing. You are only there to provide a brief explanation of the document they are signing, show the borrower where to sign and then, you witness and notarize accordingly. If there are any questions relating to the loan terms, we must get the lender/broker on the line to resolve any questions or concerns. We are not authorized to interpret or explain the loan product or even advise when the loan will fund.

Reply by JM_NY on 6/12/06 11:19pm
Msg #125521

I understand I am only there as signing notary not a loan expert. My real question is how can you have a paid of loan in 3o years and a note for 40?

Reply by CaliNotary on 6/12/06 11:30pm
Msg #125526

I don't think you can. The note contains the terms of the loan, if it says 40 years, then it's for 40 years AFAIK.

I recently saw a strange type of loan, I can't remember what it was called. It was a 30 year fixed loan, but it had 2 different payment amounts over the life of it. For the first 10 years of the loan the payment was calcuated based on a 40 year amortization of the loan amount. After 10 years, the payment was calcuated based on amortizing the remaining amount over 20 years.

But this doesn't sound like what you saw, so I'm stumped.

Reply by PAW on 6/13/06 7:27am
Msg #125562

What you probably saw was a "converting" loan, where the first 10 years may be interest only or payments based on the loan being amortized over a 30 year period with a conversion to a regular forward 20-year fixed mortgage after the 10th year on the remaining principal.

There are many, many different loan products on the market, some with pretty 'creative' financing, such as the 40/30 loan, 10/20 conversions, etc. They're all hedging on the future as to interest rates and property values for the intention of refinancing during the initial periods.

Reply by CaliNotary on 6/13/06 9:01pm
Msg #125769

No, it wasn't that. I'm pretty sure it was called a double amortization loan or something along those lines. But it was definitely an initial payment based on a 40 year amortization, even though the length of the loan was 30 years. I'd never seen anything like it before or since.

Reply by CaliNotary on 6/12/06 11:17pm
Msg #125519

"Please help me understand why the broker on the loan yelled at me for not helping the borrower understand the loan. I do not."

Because the broker is a butthead. He should have made sure the borrower understood exactly what they were getting long before you ever entered the picture.

Reply by PAW on 6/13/06 7:16am
Msg #125560

These loans have been very typical for about a year and half because of rising interest rates and cost of housing. The principal and interest are calculated (amortized) over 40 years instead of 30 years, which makes the monthly payment about $100 less per month. But the kicker is, on the 360th payment (end of the 30 years), the unpaid principal is due as one lump sump, thus the balloon.

Reply by janCA on 6/13/06 2:00pm
Msg #125624

Been doing quite a few of these lately, and the borrowers plan to refi after the prepayment penalty time is up.

Reply by JM_NY on 6/13/06 8:53pm
Msg #125768

Thanks Paw for explaining. I wish the loan officer explained it that way to the borrower and me. Every day I learn. I think an interest only loan seems like a bettter way to go.