We are supposed to gross up non-taxable income (such as social security) by 25%, correct?

I actually just came across this post, which answered my question in general.

http://www.bankersonline.com/lending/guru2005/gurus_ldng081505a.html

BUT...as I scrub our LAR, what I am finding is that the lender did not gross up the non-taxable income (even though it is within our bank policy to do so). So, what I am concerned about now is that I will find variations in the LAR (some lenders grossed up and some did not).

We actually have a place within our underwriting worksheet that the lender completes that says "HMDA - Income used for decision."

Should I just stick to whatever the lender put down, or calculate the income for all the files and if there was non-taxable income, gross it up?

I would stick to what is one the sheet. Examiners want to see consistency in how your gather your information.

I've got a mess on my hands. I have a case (for example) where the lender used $154,000 as the income for DTI and approval purposes, but the applicant actually indicated $151,000 on the application - then of course the pay stubs received reflect $155,000.

Our LAR will indicated what was really used for the decision - which was $154,000.

We have income figures all over the place - I am sure no one else has this problem, right?

I wouldn't get confused with what HMDA requires to be on the LAR and what you find elsewhere in the file. While what you are coming across would be concerning (especially in a fair lending context with the inconsistent application of grossing up NTI), you are not obligated under HMDA to reconcile all of the documentation to determine what was used for decision making. We state in our procedures that we use specific source documents (DTI worksheet, underwriting transmittals, etc.), and whatever's on those source documents is what we always use to record GAI.

If you are FDIC you could be facing some fair lending issues.


Division of Supervision and Consumer Protection, 300 South Riverside Plaza, Suite 1700. Chicago, IL 60606312-382-7500
Bulletin Number: CHIRO-03-2010
Potential Substantive Fair Lending Violations Resulting from Inconsistent Treatment of Non-taxable Income

Recent compliance examinations have identified situations where financial institutions have not consistently applied underwiting standards with respect to non-taxable sources of income. Many financial institutions have adopted underwriting policies relating to the treatment of nontaxable income as recommended in guidelines established by secondary market purchasers whereby non-taxable income is given greater weight than taxable income ("grossing-up"). Financial institutions have been found to gross-up some non-taxable income, such as social security payment while failing to gross-up other non-taxable, such as child support or public assistance income. Although a financial institution is not required to adopt a policy to treat nontaxable income differently from taxable income, if it chooses to adopt such a grossing-up policy, it must apply this policy to all non-taxable income of applicants, not only social security income, which is the most common non-taxable income. Failure to gross-up certain types of non-taxable income, such as child support, when a financial institution has adopted a policy to weigh nontaxable income more favorably, may subject your financial institution to significant fair lending violations.

The Equal Credit Opportunity Act prohibits creditors from discriminating on the basis of sex and marital status. 15 U.S.C. § 1691(a). The failure to gross-up child support income while including other forms of non-taxable income pursuant to such grossing-up underwiting standards may result in a finding that such policy or practice disparately affects women and/or unmarried women. According to U.S. Census data, women are 88 percent more likely to receive child support payments than men. Additionally, the Fair Housing Act states that it is unlawful for "any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction because of . . . sex, (and) familial status. . . ." 42 U.S.C. § 3605(a). A financial institution's failure to gross-up income derived from non-taxable child support payments when it is grossing-up other sources of non-taxable income in a real estate related transaction intrinsically treats families with children less favorably. As stated above, such policy may also result in a disparate impact on women.

Financial institutions are encouraged to review underwiting standards to ensure the consistent treatment of all non-taxable income sources when evaluating credit applications. If you have any questions concerning this information, please contact us by-mail at scans@fdic.gov or call us at the Chicago Regional Office Banker Hotline, (312) 382-6926.

You wouldn't happen to have a link to that, Dan?

These are email bulletins sent out by the FDIC Chicago Regional Office. They are not linked on the FDIC's Web site.

Also, ignoring HMDA technical reporting for the moment and viewing HMDA as the gateway to fair lending, being able to show just how those numbers were derived is important. Otherwise you could have inconsistency in how the income is calculated (taxable and non-taxable).

So, you might be technically okay because you used line 10 on your form and that is on your LAR, but you were actually discriminating - not a good thing.