We have traditionally allowed expanded DTI ratios up to 50% as the LTV dropped to sub 80, pending certain PITI and credit score requirements. I am wondering if such a strategy going forward will be problematic for loans where we are not pursing QM, but will still comply with ATR. Obviously, we will still fully underwrite, prove and document their ability to repay, but I am curious if the indirect connection with the low LTV, will be or can be seen as a proxy to prove the loan and thus possibly put us in a position where our ATR could be easily set aside in litigation. Thoughts?

If challenged, you'll need to be able to show your strategy demonstrates a reasonable ability to repay the debt. If I were you, I'd do some analysis of your portfolio to see how the loans with this strategy performed (and are currently performing). Then compare the results to your non low-LTV standards and see where you come out.

Bottom line, I think at least the CFPB will look at anything based on LTV as a red flag. At the ABA Compliance Conference this summer at an ATR/QM session one the folks who worked on the rule said they specifically wanted to prohibit anything that could be considered collateral based lending.

Just my own thoughts. Take them with a grain of salt, because I don't think anyone can say with certainty how this is all going to shake out.

I agree with Buggs. Having a low LTV is not a comp factor to support a higher ratio and the Ability to Repay.

We allow higher ratios as well, but require assets (even retirement assets) as additional liquidity to offset higher ratios. We have done this for over 10 years and can support it as a valid comp factor. If the Loan Originator takes time to obtain a full application with all assets, you will be surprised how many borrowers have the additional assets.

My take on going above 43% DTI is you must use the residual income. One example the CFPB used is if you have a person who earns $100,000 per month and has total liabilities of $50,000 per month, you have a DTI of 50%. Still a great loan to make since the residual income is outstanding.

Wells Fargo is using $2,500 or more residual income left after the liabilities are removed, if you have that or more, you are okay, you can afford the loan. Basing any qualification on LTV is very dangerous now and should be avoided. Residual income is a better defense.

Check out this thread:

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1881352#Post1881352