Question & Answer

Question: When an applicant relies on public assistance income, who is responsible for proving that public assistance will continue and for what period of time? Is the burden of proof on the customer or on the lender?

Answer: There is not a clear answer to this one. It is a good idea for at least some of your underwriters to be familiar with government income programs so that the bank has a resource for knowing what the terms, conditions, and longevity of the program are. It is reasonable to ask the applicant for this information, but it is probably not a sound practice to require the applicant to know the answer. It is better that the bank knows the income rules.

The creditor should take reasonable steps to verify the income or the likelihood that the applicant will continue to receive it. Clearly you can ask the applicant for information that will help the bank determine the income's value to the application. This may include information about the length of time the applicant has been receiving the income, or the age of the applicant's dependants.

For example, SSI which will stop in 5 months could be considered if the expenses related to supporting that child would stop. Alternatively, if the income is for foster care, the family might state that it would take in another foster child so that the income would be replaced.

Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 7, 6/99