I have a first mortgage loan on primary residence for Home Improvement. The borrower is self employed as well as has 3 rental homes. We have tax returns in file and schedule E's showing the rentals. We did not obtain any lease agreements.

We have filed a UCC1 and not included these 3 rental debts in the DTI calculation. I don't really understand how UCC1's work so this may very well be a correct practice.

Would you guys consider this acceptable or would this raise questions for you if you are auditing the file? It concerns me because the DTI is close to being outside policy and these debts are not included in the DTI.

Thanks

What in the world does the filing of a UCC-1 have to do with calculating DTI?? There are specific ways to calculate income and expenses on rental properties. You can't just ignore it.

My question was that the rental properties that are on his credit report was not considered in the DTI...is this a normal practice for most of you?

If these loans for these rental properties are in the borrower's name, shouldn't they be included in the DTI against him? The Loan officer says no but there are no rental agreements in the file showing he is receiving monies for these rentals...the only thing there is in the file is a UCC1 filing against the rentals. Are the schedule E's on the tax returns sufficient evidence?

Like I said, a UCC-1 is a collateral issue and has nothing to do with calculating ATR.

Look at Appendix Q, it covers how to evaluate rental income, even if you are not doing Appendix Q QMs.

It's obvious that I am not asking/explaining my question correctly but thanks anway.

Well, I guess my point is that filing a UCC-1 in order to try and secure the rent receivables really has nothing to do with calculating the ATR. How you secure a loan is up to the bank and is totally unrelated to calculating DTI.

Do you have to properly account for the liabilities and revenue related to the rental properties in your ATR calculations? Of course you do. But that has nothing to do with and is not related to any type of security interest filing that you make.

Appendix Q will give you the basics of how to account for rental property in your ATR calculations.

If that is not your question, then please try again, because that is how I interpret what you are asking.