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#1922590 - 05/13/14 02:38 PM Documented cash income
Ski Offline
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Joined: May 2003
Posts: 639
South Louisiana
A few of our mortgage loan customers have ONLY cash income or Social Security and cash income. They can bring in signed/dated letters/notes, etc. from the payors stating how long they have worked for them, how often they pay them and the amount.

Doesn't seem to meet Appendix Q requirements, but could we use this if we are aware of the consequences of doing so?

Looking for issues either way.

Thanks in advance.

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#1922713 - 05/13/14 04:41 PM Re: Documented cash income Ski
#Just Jay Offline
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Cheeseheadland
Will all of those signed/dated letters/notes tie back to their tax returns?
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#1922719 - 05/13/14 04:53 PM Re: Documented cash income #Just Jay
Ski Offline
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Joined: May 2003
Posts: 639
South Louisiana
It is possible that they do not make enough to have to file tax returns.

Must all cash income be able to be traced to a tax return?

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#1922756 - 05/13/14 05:44 PM Re: Documented cash income Ski
RR Joker Offline
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The Swamp
I would say...yes. Otherwise, it's just conjecture.
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#1922809 - 05/13/14 06:58 PM Re: Documented cash income Ski
Dani York, CRCM Offline
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Dani York, CRCM
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TN
If you are trying to make a QM, I think you are pretty much out of luck if Appendix Q tells you not to use it. If you are willing to make a non-QM and follow general ATR rules, the letters and notes might work, provided that your policy allows for them and that you trust the notes and letters to be valid/trustworthy.

Originally Posted By: 1026.43(c)(4)

1026.43(c)(4) Verification of income or assets. A creditor must verify the amounts of income or assets that the creditor relies on under ยง 1026.43(c)(2)(i) to determine a consumer's ability to repay a covered transaction using third-party records that provide reasonably reliable evidence of the consumer's income or assets. A creditor may verify the consumer's income using a tax- return transcript issued by the Internal Revenue Service (IRS). Examples of other records the creditor may use to verify the consumer's income or assets include:

(i) Copies of tax returns the consumer filed with the IRS or a State taxing authority;

(ii) IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding;

(iii) Payroll statements, including military Leave and Earnings Statements;

(iv) Financial institution records;

(v) Records from the consumer's employer or a third party that obtained information from the employer;

(vi) Records from a Federal, State, or local government agency stating the consumer's income from benefits or entitlements;

(vii) Receipts from the consumer's use of check cashing services; and

(viii) Receipts from the consumer's use of a funds transfer service.


I've highlighted some non-tax return/non-traditional documents the reg says you can use to verify income under general ATR.

I think the letters/notes would definitely qualify under (v)-records from the consumer's employer. Again, do you trust the person writing/signing it?

The reg allows you to use receipts from check cashing services (vii) and fund transfer services (viii). The CFPB included these receipts as forms of income verification for a reason--primarily to allow unbanked people to continue to have access to the credit process. I would liken the notes/letters to receipts also.

Do these mortgage customers maintain bank accounts? If so, the reg says you can use financial institution records (aka bank statements) (iv) to verify income. If the customer regularly deposits XX.XX in cash every week and those figures match (or at least come close to matching) the figures listed in the notes/letters, you could call that income verification under general ATR.

If you do choose to accept the notes/letters, be consistent on how you want the letters to read. Maybe come up with a form that you can send directly to the payors to obtain the information, and ask that it be notarized. If it were me, and my bank wanted to use notes/letters from the payors, I would also want some bank statements to compare them to.

Regardless, be sure you assess risk of the payors lying about the income just to help your borrower get a loan, and make sure your bank is willing to accept the potential fall out in the event of a lawsuit.

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