I realize this is risky and makes me uncomfortable, but I have to ask. Can a bank establish an ATR policy for non-QMs that states we may not verify all 8 underwriting factors? For example, the borrower may be a long-time commercial customer and the personal tax returns were obtained/reviewed for a commercial transaction last year. We know income is more than sufficient to service the mortgage loan. Could an exception be made to not verify income by obtaining current tax returns as long as the exception is documented?

I think you answered your own question in your first sentence. Allowing for exceptions to the ATR requirements will invite examiner criticism. From my perspective it would be a violation of Regulation Z and could result in a citation on safety and soundness criteria, since it leaves you open to a civil suit.

That said, if the records you already have in file are still the most recent personal tax returns for the applicant, you might make a reasonable argument that you're considering the most recent tax returns submitted. But if another tax filing has been made, I think you need it, not last year's.

Thanks, John. Your comments are helpful!

The rule is specific about how to verify income and assets (1026.43(c)(4)), but what about the other factors? Debt obligations and credit history can be verified from the credit report. However, is it up the lender how mortgage related payments (i.e. review title policy for taxes) are verified?

I'm attempting to write a specific, yet not too specific, ATR policy. Ugh.

Under the ATR rules, is it your interpretation that child support and alimony obligations need to be verified through some sort of documentation such as divorce decree or court order? If a borrower lists these obligations on a credit application, can we rely on the disclosure on the credit application since it will not be verified through the credit report like other debt obligations?

I would consider child support/alimony payments to be current debt obligations. Under 1026.43(c)(3)(iii), it states current debt obligations that appear on a consumer's application but do not show on the credit report, need not be independently verified by the creditor. Therefore, we are not requiring a divorce degree or court order at this point. The credit report will be our only verification for current debt obligations.

That being said, if alimony or child support is being used as income and the creditor relies on it to evaluate the consumer's ATR, it should be verified, in my opinion.

Mel, do you really need a separate ATR policy? I'm thinking of adding a reference to appendix Q and the 8 factors for ATR to our underwriting policy.

I am actually enhancing our mortgage loan policy with the 8 factors, but will get more specific about the verification piece. Some of the loans we currently take into portfolio (non-QMs) are not always verified according to the reg.

Under 1026.43(c)(3)(iii), it states current debt obligations that appear on a consumer's application but do not show on the credit report, need not be independently verified by the creditor. Therefore, we are not requiring a divorce degree or court order at this point. The credit report will be our only verification for current debt obligations.

Mel in WA,

I see your point, but after reading the Commentary to this section of the Reg, I'm now questioning whether or not you still must verify a DEBT obligation related to child support or alimony. The section you quote is clear, but the Commentary seems to hint at separately verifying (as a debt obligation). SURE WISH A GURU WOULD OPINE.

Comment 43(c)(2)(vi) doesn't address alimony or child support payments at all aside from opening with a recitation of the requirement of 1026.43(c)(2)(vi) to consider current debt obligations and "any alimony or child support the consumer is required to pay."

However, comments 43(c)(3)-3 and -6 seem to provide a basis for taking the information relating to alimony and child support obligations on the application at face value unless you have information to suggest that the amounts are inaccurate. Note that the language of comment 43(c)(3)-3 includes legal obligations such as alimony and child support as examples of debt obligations.

I'd be more comfortable having it stated in plainer language (I wrote term papers shorter than that comment -3!), but I think you can find a basis for accepting the application information. You might consider bolstering it with evidence of payments from the applicant's bank statement.

Of course you can obtain a copy of the order for those payments, and you can also inquire as to the ages of the children for whom child support was ordered, to see how long it will endure.

Thanks, John!

How do we handle a divorce situation that is not final in terms of ATR? We have an applicant who has applied for a mortgage loan, is in the process of getting divorced, has minor children, and tax returns are still joint. Actually, they still live together and the application is filled out as married. They don't know what the child support payments will be, if there will be alimony, etc. Are we supposed to underwrite it without regard to those potential payments since they aren't known?

From an ATR standpoint, you need to underwrite based on what you know, and more importantly, what you can verify through third-party records. If there is no third-party record for child support or alimony, you can't count that income stream or debt payment in the ATR calculation.

Thank you.

I was reviewing this post and wanted some clarification. We started to process an application for a purchase with a married couple. We then received a request to take the wife off of the application. The loan was approved, commitment letter issued and sent to the attorney/settlement company for closing. Subsequently we received a concent order that states the parties have scheduled a custody conference and a support hearing, as well as an order that the wife will not be on the deed to the property being purchased but the court stipulates that the property will be a marital asset. My borrower's debt to income was okay at about 33% but we know he is going to be hit with substantial alimony and child support as he is a doctor with children. He has even told us that he plans to sell the home in the next year because he won't be able to afford it but still wants to complete the purchase. I'd like to deny the loan now but without verifiable info on the support payments, how do I pull the plug on this?

Based on the fact he just told you that his living and financial situation has just substantially changed from what was known at the time of application, and he will not be able to afford the payment within a few months. Boom. Done.

I would rather defend in court that the Dr claimed he didn't make such a statement for rescinding the approval then to defend why we made the loan and his attorney is suing us under the ATR requirements because the Dr. claims he did tell us he wouldn't be able to make the payments.

As JJ states, the Dr. has informed you of an upcoming substantial negative change to his financial situation that will impact his ATR. That is your basis for rescinding the approval.

Okay, makes sense to me. Thanks for your response.

Does anyone have a Mortgage Loan documentation checklist that you are happy with? We need to update our form and I would like to consider other formats. We have developed a new ATR worksheet for income and assets verification and we are now working on a Quality Assurance form for Mortgage Loan Documentation.

Thanks in advance!

Old thread, but since I was looking at it for guidance, I would hazard to say that I disagree with what John posted above. To me, the Commentary to .43(c)(3) seems to indicate that additional third-party records would be needed to verify child support payments.

For example, if a credit report states the existence and amount of a consumer's debt obligation, the creditor is not required to obtain additional verification of the existence or amount of that obligation. *In contrast, a credit report does not serve as a reasonably reliably third-party record for purposes of verifying items that do not appear on the credit report.* For example, certain monthly debt obligations, such as legal obligations like alimony or child support, may not be reflected on a credit report. *Thus, a credit report that does not list a consumer's monthly alimony obligation does not serve as a reasonably reliable third-party record for purposes of verifying that obligation.*

6. Verification of current debt obligations. Section 1026.43(c)(3) does not require creditors to obtain additional records to verify the existence or amount of obligations shown on a consumer's credit report or listed on the consumer's application, *absent circumstances described in comment 43(c)(3)-3.*

So, child support is one of the circumstances described in (c)(3)-3 and that interpretation states that the credit report does not serve as a reasonably reliable third-party record to verify the obligation. To me, this means such a payment requirement defaults to the original standard that "a creditor must verify the information that the creditor relies on in determining a consumer's repayment ability under § 1026.43(c)(2) using reasonably reliable third-party records."

As far as not verifying obligations, this seems restricted to instances where a borrower has debt that they freely choose to put on an application, such as the borrower showing a car loan payment, but no such payment exists on the credit report.