I was wondering how other banks calculate DTI in regards some of the following situations:
1. An American Express Credit Card where the borrower has to pay off the varying balance each month
AND
2. A debt that will be paid off in less than 12 months

Thanks

Have you looked at Appendix Q in Regulation Z?

I am a bit confused on the inclusion of balloon payments. I had in my mind that the balloon payment more than 60 months from the initial payment is not included in the ATR calculation. I now find (including in Appen Q) that if the balloon is greater than 12 months out it does NOT have to be included in the debt service.

Can you direct me to the regulation I should be looking at to get a final answer?

Thank you

Appendix Q is the only regulation that there is.

What kind of loan are you looking at? If you are trying to do a QM balloon mortgage under 1026.43(f) as a small creditor, you can ignore Appendix Q and the balloon payment (see 1026.43(f)(1)(ii)). If you're not a small creditor or don't care about making a QM, Appendix Q can be used as a guide, but it's not mandatory to use it. For non-QM balloon loans, you look at 1026.43(c)(5)(ii)(A) and use:

(1) The maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced covered transaction; or

(2) The maximum payment in the payment schedule, including any balloon payment, for a higher-priced covered transaction;...

For revolving debt we use the greater of the minimum required payment stated on the credit report or a set percentage of the outstanding balance owed. This is stated in the loan policy and applied across the board to avoid fair lending issues. Hope this helps.

I have a DTI calculation question and tagging along to this thread:

Customer has a business/commercial loan in the customers name. Same customer is wanting to do a primary residence loan. Would the business/commercial loan be considered in the DTI calculation since its in the customers name? Or would it be considered a business expense?

Thank you.

Same customer is wanting to do a primary residence loan. Would the business/commercial loan be considered in the DTI calculation since its in the customers name?

Yes

Presumably, you are giving the customer the benefit of income from the business in one way or another. But even if you aren't, if the consumer is liable on the business loan, you have to include the business loan payments in the DTI calculation.

I would also like to tag on to this thread. In a previous thread, I asked a similar question, and it was suggested that we not show the business debt if a borrower co-signs (contingent liability); assuming that the businesses are viable.

However, if the applicant is a joint borrower on business liabilities, would we then consider those debts in the DTI calculation? I guess I have some confusion in contingent liabilities and co-signers/borrowers. If it is on the credit report, they have some sort of responsibility for that debt.....