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#1962392 - 09/16/14 08:49 PM About to Retire & Ability to Repay
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We have an applicant for a 2nd mortgage that is about to retire. He told us within the next year he is calling it quits and his income will be half what it is now. Even with the reduced income (we haven't verified it yet) he will be around 40% DTI. Credit score is nearly 800 but here's the kicker. He has nearly $80,000 in credit card debt but nothing bad on his credit. Management is not comfortable about this loan but LTV, DTI and credit score look fine. Is there a reasonable way to decline this request and not subject the bank to a potential age discrimination suit?
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#1962398 - 09/16/14 09:03 PM Re: About to Retire & Ability to Repay Red Raiders
Norman Paperman Offline
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amount of balances in relation to credit?

Do you have a policy or practice for denying for such a reason?
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#1962403 - 09/16/14 09:26 PM Re: About to Retire & Ability to Repay Red Raiders
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Our policy doesn't address that.
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#1962405 - 09/16/14 09:38 PM Re: About to Retire & Ability to Repay Red Raiders
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What about practice? Do you typically deny borrowers for having $80k in credit card debt?

Do you have similarly situated borrowers where you did make the loan?

If your management has a problem with the large balance on the credit cards, that should be addressed with the customer and denied for that reason if that is the legitimate reason. If you are denying him because he is retiring soon, you have a problem.

Just my humble opinion.
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#1962777 - 09/18/14 01:39 PM Re: About to Retire & Ability to Repay Red Raiders
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It's not that he is retiring soon. It really is because of the high level of credit card debt. Even though the ratios would technically be fine (assuming minimum payments of course) it is concerning that he will never be able to pay down the credit cards.
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#1962782 - 09/18/14 01:45 PM Re: About to Retire & Ability to Repay Red Raiders
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Why will he never be able to pay down the credit cards?
It you're referring to his age, then you've crossed the line into possible age discrimination.

And who's to say he will actually retire in the next year? Lots of people say one thing and end up doing another.


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#1962842 - 09/18/14 03:32 PM Re: About to Retire & Ability to Repay Red Raiders
Dan Persfull Online
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And who's to say he will actually retire in the next year? Lots of people say one thing and end up doing another.


From the Commentary to 1026.43's ATR section:

. . . if a consumer's application states that the consumer plans to retire within 12 months without obtaining new employment or that the consumer will transition from full-time to part-time employment), the creditor must consider that information under the rule.
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#1962853 - 09/18/14 03:55 PM Re: About to Retire & Ability to Repay Red Raiders
Truffle Royale Offline

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dang it! Forgot about that. Thanks, Dan.

How DO you remember all this shtuff???!!!!
laugh

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#1962875 - 09/18/14 04:24 PM Re: About to Retire & Ability to Repay Red Raiders
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I had peomised to keep it a secret, but Dan moonlights as a policy writer for CFPB.

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#1962876 - 09/18/14 04:28 PM Re: About to Retire & Ability to Repay Rocky P
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laugh
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#1962885 - 09/18/14 04:48 PM Re: About to Retire & Ability to Repay Truffle Royale
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Originally Posted By: Truffle Royale
Why will he never be able to pay down the credit cards?
It you're referring to his age, then you've crossed the line into possible age discrimination.





Credit cards have been at this level pretty consistently for some time at full income. If he retires and income reduces to half I don't see how he can reduce the balances.

He has a 1st REM with us presently and is looking to refi with us his 2nd that was financed elsewhere. The other lender told him they won't renew it (not sure why).
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#1962924 - 09/18/14 05:52 PM Re: About to Retire & Ability to Repay Red Raiders
waldensouth Offline
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FINALLY ABOVE the gnat line
and here I was hoping that the 2nd was to payoff those credit cards.....

would you not then document what his retirement income will be to determine if he passes the credit test? Don't know if you're relying on what he told you or what to determine that his income will be 1/2
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#1963055 - 09/18/14 09:06 PM Re: About to Retire & Ability to Repay Red Raiders
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At this point we haven't verified income, only going by his figures. We just wasn't sure if we had an "out" if he technically can afford the loan with his reduced income but wouldn't be able to reduce any revolving debt.
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#1963069 - 09/18/14 09:45 PM Re: About to Retire & Ability to Repay Red Raiders
fmissle Online
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I don't really have an answer to this question, but now you do know that you need to look at your credit policy.
If the underwriters feel uncomfortable with this deal, they should be able to say why and then in that characteristic in underwriting considerations in the future.

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