Final answer:
Balloon payments are typically prohibited in high-cost home loans but may have limited exceptions for borrowers with seasonal or bonus income. These exceptions cater to individuals with predictable, fluctuating income patterns, allowing for loan terms that match their unique financial situations.
Step-by-step explanation:
Certain terms may NOT be included in a high-cost home loan, including balloon payments, with specific, limited exceptions for seasonal or bonus income. This means that typically, risky loan features such as large balloon payments at the end of a loan term are not permitted under stringent lending rules designed to prevent borrowers from being trapped in loans they cannot afford. However, exceptions are made for borrowers who have seasonal income (possibly because they work in industries like farming or tourism that have strong seasonal patterns) or who receive regular bonuses (which could indicate a pattern of receiving additional income at certain times of the year).
The context of this question relates to the practices that were common during the housing bubble, where many people were able to secure loans to build new houses. At that time, financial institutions offered various loan types, including those with complex terms such as balloon payments, subprime loans with low initial payments that would later increase, and even NINJA loans, which required no income, job, or assets from the borrower. This lax lending led to a situation where people were buying cars and houses they could not afford, which consequently caused issues for both banks and borrowers when the market conditions changed.