We have a loan where the borrower has debt with another person. The other person makes the payments. Do we still include this loan in the ATR calculations if we can prove the other person is paying?

What happens if the other person stops paying for whatever reason, would your borrower not then be liable to pay the debt?

If he's contractually liable it's his debt regardless who he made arrangements with to make the payments.

You'd need a release of his liability on the debt in order to ignore the obligation in your ATR analysis.

Thank you. That is what I thought. Just wanted to make sure I hadn't missed something.

And to just to be clear, that release would need to be from the creditor, not the other person making the payments.

Believe it or not I have seen ex-spouses bring in a "release" from the other ex-spouse that was paying a debt under orders of the divorce decree stating they release their ex of any payment liability. Ummm, no that doesn't work.

Good catch, Dan. Get the release from the party that counts.

Curious. In Appendix Q under the contingent liability section it addresses this scenario, or potentially does, so am wondering if I have misinterpreted the reg or your comments above? Or if you are just saying that best practice is to include anyway and disregard. Thanks


Contingent liability applies, and the debt must be included in the u/w analysis, if an individual applying for a mtg is a cosigner/co-obligor on: 1)car loan 2) student loan 3) mortgage or 4)any other obligation.

If the creditor obtains documented proof that the primary obligor has been making regular payments during the previous 12 months, and does not have a history of delinquent payments on the loan during that time, the payment does not have to be included in the consumer's monthly obligations.

I saw that also, but took Contingent Liability as a co-signer, not a co-borrower.
In my situation, the individual is a co-borrower

I thought that originally as well but it says co-obligor so thought that would include a co-borrower. But, maybe that's incorrect so thought I needed to ask to be clear.

Thanks!

Just to clarify again. This section of App Q is only for co-signer in your opinions? It does say co-obligor so again, does this not include co-borrower?

Thanks

Contingent liabilities are those for which an obligor is not primarily responsible, which a co-borrower is. Like a guarantor.

True. I guess I was not clear as to why they would call a co-obligor debt a contingent liability and the secondary market underwriters are allowed to disregard debt that they can provide the proof of payment by others through their rules so I had thought/hoped this would meet that standard as well...