The final rule 1003.4(a)(23) states that commenters explained that financial institutions usually consider the cash flow of the property, such as the debt service coverage ration, rather than the income of the applicant when evaluating a multifamily loan or a loan to a non-natural person. It goes on to state that the Bureau understand that this cash flow analysis is different from the DTI ratio, and that to eliminate the confusion, the final rule will not require financial institutions to report the DTI for such loan. The commentary excludes the DTI for non-natural persons, multifamily dwellings, and purchase covered loans.

My dilemma is that we calculate a debt service coverage ratio for business loans to an individual as well as entities. With the new rules, would we also need to calculate a DTI for individual natural person borrowers? I sat in a webinar, and the presenter has in the materials that you report NA if a debt service coverage ratio was calculated. But it doesn't seem to me that it can be NA if the borrower is a natural person.

I agree with the speaker who said if a DSCR was used, report NA. The HMDA information also says that if you did not calculate a DTI, HMDA does not require you to calculate a DTI.

HMDA is telling you how to report, not how to lend.

So more to this same concept...if we use DSCR for rental property on an individual, we would also have no income considered [typically]. Unless, they document a global and consider income in with that total global picture?

Our credit department told me that if any analysis is done at all we use DSCR for all our business purpose loans, including dwelling secured loans. Unless of course it's one of those "we know who he is, he's good for it" sort of deals and neither the DSCR or DTI was analyzed. My concern is that we had to do a HMDA scrub this last year because we weren't reporting income on any of our commercial loans, even if the applicant was a natural person. What a mess is all I have to say about that. I'm worried that if we report income but not the DTI, or not report both, we will be scrutinized even more harshly at our next exam in 2020. But I don't want to report something that we didn't really consider (the DTI) in making the credit decision. I wish I could retire....

The problem with this re income is it varys by agency, examiner team, etc. I know there are parts of the country where every single commercial real estate deal, regardless of borrower, is reported with NA for income because global cash flow and project cash flow is used, never income. Examiners are fine.

Same process somewhere else, that won't fly. I agree with the "income was not considered, we look at cash flow and report NA" camp. If I was still at a bank, I would argue that well after the cows came home.

Now, for DTI I don't see the same problem. if you did not calculate one, do not calculate one for HMDA just to report it and do not report a DSCR or DTI. It is not DTI.

I agree. We had a conversation with an attorney at the CFPB. She agreed that if you use DSCR & not DTI, you should report NA for the DTI entry on the LAR.

After much internal debate, and reading posts we are good with the DSCR NOT being reported as debt-to-income when a natural person is applying for a HMDA business-purpose in commercial. HOWEVER, we have two issues with that:

1. So that means if there is no "DTI" then a decline for a commercial, natural person can never be for a reason of "debt to income." We would write in in "Other" for denied reason: insufficient cash flow.

2. Does this then negate reporting of Income for the natural person business-purpose loan? KB had replied in a post above that this seems to be a regional/regulatory matter, where here in NJ we have always reported income for natural persons. I cannot find the same support in 2018 HMDA. DO WE LEAVE INCOME N/A for natural persons for business purpose loans subject to HMDA?

1. I agree that DSCR is not DTI for HMDA income [(a)(24)] reporting; however, that doesn't mean that you can't use Code 1 - Debt to Income as the reason for denial. The reasons for denial in HMDA are not specific terms. It is my opinion, they represent many things on the Reg B denial notice. For example, "excessive obligations" and "income insufficient" would both fall under this denial code. I believe you need to report the Denial reason as "Code 1" if a business customer's DSCR is out of wack.

It would be good to see this clarified by the CFPB.

2. If you used an income in your analysis, you should report it. I agree that not all income analysis (cash flow) may not "income" for HMDA, but I've never seen the issue KB reported (in my neck of the woods).

I have the EXACT same questions. And if I get to the point where I am Ok with reporting NA for DTI (because I calculate a DSC and not a DTI) but I still report the income, I have another question.

If I am relying on the income of the guarantor for my credit decision, is the income I report include their income? in once sense the rules wants me to report the income relied upon to make the credit decision but it also states do not report the income of a guarantor if they are only secondarily liable.

I think I might start preparing my sr. mgmt. now that we will have to re-file because there is no way we are getting this all right.