Can using a minimum income requirement create disparate impact? My thoughts were yes but then I noticed that one of the decline reasons on one of the sample AANs was did not meet minimum income requirement...

Thoughts?

I would be more comfortable basing it on ratios instead of a minimum, but I'm not aware any prohibition from doing so.

To avoid the disparate impact you would want to be sure the minimum income was not set so high that it automatically eliminates customers in your low to mod income tracts. IOWs you need to do a income study for your market and not just pick a number out of a hat.

^^^ Ditto... maybe start by researching median income levels for your assessment area. That way if an examiner were to question the minimums you set, you would have documentation of how you reached your numbers. HUD and Fannie Mae might be two places to look for this information.

The concern was about lending too much to lower income people that would keep them from having any disposable income, even with a low to medium DTI.

Great idea regarding the assessment, thank you.

At the last FI I worked, we not only looked at the DTI, but at the residual income. They had to have a certain amount of income left after expenses to qualify for the loan.

Doug, do you remember what the residual income qualifier used was? I'm assuming a percentage?

No, it wasn't a percentage. This FI used $900 for the first person and $200 for each dependent. So if it was a couple with 2 kids, the residual income would be $1,500. Don't ask me how they came up with those figures. I presume part of the $900 was for the household itself (gas, electric, etc.) and then $200 per month for each person (e.g., food).

hmm, so if someone only made $1000 a month gross then they were declined automatically. I will look more into that, thanks!

Qualifying for a VA (Veterans Administration) loan includes calculating residual income-you could probably find them on the VA website