In the HMDA Get it Right manual it states:

Instructions (Appendix A) 6. Income. Enter the gross annual income that your institution relied on in making the credit decision.

Commentary (appendix D) An institution reports the gross annual income relied on in evaluating the creditworthiness of applicants. For example, if an institution relies on an applicant's salary to compute a debt-to-income ratio but also relies on the applicant's annual bonus to evaluate creditworthiness, the institution reports the salary and the bonus to the extent relied upon. Similarly, if an institution relies on the income of a cosigner to evaluate creditworthiness, the institution includes this income to the extent relied upon. But an institution does not include the income of a guarantor who is only secondarily liable.

I think that what is happening is that when reading the statement from Appendix A we are incorrectly defining gross annual income to mean "before taxes". If you use that definition the statement itself is contradicting if you use Rental income (after expenses) to underwrite the loan but report Gross Rental Income (Revenues).

If we use the example in appendix D to clarify what is reported (replace annual bonus with Rental Income) I believe it is clear - use the income relied on to make the credit decision which would be Salary plus Rental Income. In this case the definition of "gross income" would be "total income" relied on to make the credit decision.

So my questions pertains to how to report Income on the LAR. I really think you could go either direction. Originally we felt that since gross revenues were listed on the loan presentations, it would be better to use that number, since it is gross and appeared to be used in the credit decision. But the underwriters don't actually rely on the gross revenues, they rely on the revenue less expenses. Isn't revenue less operating expenses = gross profit and therefore could be argued to be the gross income number. Since gross income is not defined by the regulation, it's difficult to say which direction examiners will go with it, so I'd thought I would ask how other Bank's are reporting and what they may have heard from examiners or consultants?

Thanks.

IMHO - Gross rental revenues are not income. Only the rental income would be reported as income to the individual. Revenues go on a schedule (i.e. Schedule C) along with expenses and only the profits transfer to the individual's income.

It could also be that in these situations your institution does not rely on income in making the credit decision. It may be that the underwriters are instead relying on the cash flow of the rentals.

Related to rental income....We have a loan where the officer calculated the DTI using gross annual wages and net rental income. But on the DTI calculation sheet, he showed how he got to the net rental income (Gross Rents-x=net rents). Would the gross rents be added to the gross wages (treating the gross rents as being considered similar to the bonus example given in the commentary)?

Bump