What portfolio requirement applies to balloon QM for small creditors?

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Multiple Choice

What portfolio requirement applies to balloon QM for small creditors?

Balloon QM for small creditors is allowed only if the loan stays on the originator’s books for a set period. Specifically, a small creditor must hold the balloon-payment QM in its portfolio for at least three years after origination. This requirement ties the lender to the loan, promoting ongoing risk oversight and servicing instead of quick resale, which helps mitigate the balloon risk at maturity. So, the correct concept is that the balloon QM must be retained in the lender’s portfolio for three years. It’s not an outright exemption, not a mandate to liquidate in one year, and it doesn’t prohibit balloon QM for small creditors—it's about the minimum portfolio-retention period.

Balloon QM for small creditors is allowed only if the loan stays on the originator’s books for a set period. Specifically, a small creditor must hold the balloon-payment QM in its portfolio for at least three years after origination. This requirement ties the lender to the loan, promoting ongoing risk oversight and servicing instead of quick resale, which helps mitigate the balloon risk at maturity.

So, the correct concept is that the balloon QM must be retained in the lender’s portfolio for three years. It’s not an outright exemption, not a mandate to liquidate in one year, and it doesn’t prohibit balloon QM for small creditors—it's about the minimum portfolio-retention period.

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