We offer a 5 year balloon home equity loan and the borrower(s) have the option of adding credit life/disability/unemployment insurance to the loan. The way it is processes in our core system is the premium is added to the P&I payment and each month the premium is added to the unpaid principal balance. So basically when the borrower makes a payment during the month, they are paying the interest and then principal which has had the premium added to it. My concern is we are collecting interest on the UPB and in actuality the insurance premium. I am having trouble finding guidance on whether or not this is allowable. Also since our product is a 5 year balloon, I am not sure how to calculate what would be due at the end of 5 years on page 1 of the CD or what the total payments would be on page 5 (same for the LE). In my opinion this should not affect the APR since it is optional insurance. Any help/direction you can give would be appreciated.
We are entering into Forbearance Agreements with our borrowers who have Home Equity loans since they cannot defer payments due the the requirement of having to be paid back in substantially equal payments. At the end of the forbearance period we will add all accrued interest to the balance do a modification agreement. I'm curious how others are handling this on their loan systems. Are you advancing the due date to the end of the agreement or are you letting the loans be past due until the end of the agreement?