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#1983347 - 12/16/14 04:29 PM ATR: Including Interest Only Payments
illiniyak Offline
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Individual is refinancing their home mortgage. Currently, they have a CD secured loan with our bank as well that doesn't mature (balloon) for 18 months. Interest payments are made every 6 months.

Do payments of debt secured by financial assets (where the repayment may be obtained by liquidating the asset) have to be included in the DTI for ATR purposes?

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Ability to Repay/Qualified Mortgage Rule
#1983477 - 12/16/14 08:40 PM Re: ATR: Including Interest Only Payments illiniyak
rlcarey Offline
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Do payments of debt secured by financial assets (where the repayment may be obtained by liquidating the asset) have to be included in the DTI for ATR purposes?

Aren't all secured loans in the same position through the liquidation of assets?? I know of no exceptions.
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#1985607 - 12/30/14 06:03 PM Re: ATR: Including Interest Only Payments illiniyak
Princess Romeo Offline

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But I would also think that in calculating Ability to Repay, you can include the funds in the CD - so it kind of washes out.
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#1986185 - 01/03/15 02:38 PM Re: ATR: Including Interest Only Payments illiniyak
rlcarey Offline
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you can include the funds in the CD

I'm confused. How do you do include funds from the CD in the ATR calculation?? I have a car loan and I can sell my car and pay off my car loan. How is this any different that having a loan secured by a CD???
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#1986206 - 01/05/15 01:50 PM Re: ATR: Including Interest Only Payments illiniyak
Mike Baker Offline
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I am guessing that Princess Romeo's rationale is that the proceeds of the CD are essentially a "riskless" asset [and in this case I am not considering the possibility of IRS tax liens, etc. that would add risk] in that there is no question that the value of the collateral will be sufficient to eliminate the debt [again assuming that it was not a 100% loan, and that there is an adequate margin to cover interest due on the loan.] Whereas, with an automobile, there are many factors which might result in varied amounts of proceeds from the sale of that asset; maybe the borrower would receive enough to pay off the loan; maybe not...

Also, is there any relevance about whether the funds in the CD which are collateral for the loan are considered in any required liquidity for the borrower in underwriting the loan? Just wondering, if the borrower meets any minimum required liquidity without counting the funds in the CD, would the "wash" which Princess Romeo referenced exist?
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#1986216 - 01/05/15 02:37 PM Re: ATR: Including Interest Only Payments illiniyak
rlcarey Offline
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It all depends on your underwriting policies and whether or not you are trying to comply with Appendix Q. There is no carve out in Appendix Q for CD secured loans.

I'm not saying that you might not have different guidelines, if for example, you are a small creditor, but there is no direct regulatory support for treating these loans any different than any other consumer loan.

So, someone needs to define the specific applicability before further discussion.
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#1986379 - 01/05/15 09:13 PM Re: ATR: Including Interest Only Payments illiniyak
illiniyak Offline
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Per Appendix Q:
"Moreover, when the following standards do not resolve how a specific kind of debt or income should be treated, the creditor may either (1) exclude the income or include the debt, or (2) rely on Agency or GSE guidance to resolve the issue."

GSE (Fannie Mae Selling Guide (12/16/14)) Guidance excludes loans secured by financial assets granted the lender obtains a copy of the applicable loan instrument that shows the borrower's financial asset as collateral for the loan.

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#1986413 - 01/05/15 10:18 PM Re: ATR: Including Interest Only Payments illiniyak
rlcarey Offline
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Keep reading:

However, a creditor may not rely on Agency or GSE guidance to reach a resolution contrary to that provided by the following standards, even if such Agency or GSE guidance specifically addresses the particular type of debt or income but the following standards provide more generalized guidance.

Appendix Q: III. Consumer Liabilities: Recurring Obligations

1. Types of Recurring Obligation. Recurring obligations include:

a. All installment loans;
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