If there is a collection account on a credit report with no monthly payment, are we required to calulate a monthly payment to payout collection account?

This just came up at our Bank. Anyone have an answer to this question?

I would say there are no monthly payments on such an animal. The total amount is payable and due in one payment, similar to a balloon payment that is due.

Thank you. I haven't been able to find anything about how to handle collections in the ability to repay rules and of course, we have a customer....... So we need to include the total collection amounts owed in the customer's total obligations if I understand you correctly. Yikes.

I am sure there are many opinions on this, so here is my 2 cents. IMHO. If you are trying to determine the DTI ratio then the collection account would not impact it, as you would have only 1 payment in that amount. You would not count the payment in DTI. If on the other hand the borrower did not have enough money pay the debt in full, then I would set payments at 5% of balance each month and count in DTI.

How about just telling a customer to clear any collection accounts before applying for a mortgage. In most of the banks I have worked on, there was a zero tolerance for collections and judgments. That way, you don't have to guess how the regulators or courts would treat it.

Hmmm...I have researched this too- I cannot find anything specific in the Official Staff Interpretations or Appendix Q. I know you are not asking about a "revolving" account, but for consideration of the consumer's liability purposes, maybe you could follow the 5% of the balance or $10 rule in Appendix Q? Just a thought.

One would think an account in collection would indicate either an inability to repay or an unwillingness to pay, neither of which is a good leading indicator.

I don't see these any different than: Balloon-payment notes that come due within one year of loan closing must be considered in the underwriting analysis.

And that is covered in the appendix. They are due and payable yesterday.

bumping this back up. Do any of you consider a payment amount of some type on medical collections or completely ignore them?

We ignore medical collections completely. We also do not count them for credit decisions.

There are no medical account exemptions in Appendix Q. Your own ATR standards can be what you want them to be. But if they lose their house because of them while you had knowledge of the medical debt - well...………….