A borrower is purchasing a home and the debt to income is over our policy however, an approved exception can be made. The borrower's grandfather (who is a director of our bank) has offered to sign as co-borrower to help strengthen the loan. However, we are not using any income from the grandfather/co-borrower to calculate ability to repay. Given that fact, if we don't use his income, must we use/verify his assets and real estate...taxes, insurance, etc?

Your assistance is always appreciated!

Lots of discussion on this topic.......will the grandfather be on title to the home also? If not, personally, i have a hard time calling such a person a "co-borrower" as they don't seem to be getting any benefit of the funds. If in actuality a co-signer instead, i also have a hard time.......ATR is about determining the consumer's ability to repay....IOW, if they don't qualify on their own, i don't see the option of using a co-signer to get them qualified. I'm a little puzzled about you saying you won't use the grandfather's income......if you're not using the income, and the DTI is the problem, how is having the grandfather on the loan helping anything?

I had the same questions you have.

The grandfather will not be making the payments, and will not be on the title to the home. He just offered to sign, and the lender thought as an abundance of caution, strengthen the loan, etc., it wouldn't be a bad idea.

The DTI is a little high, but it is not so much the loan would be denied. It will have to go through ATR, and the co-borrower/director has a plethora of assets. The lender was trying to avoid collecting and verifying all that, for a $40,000 home loan.

To answer the last question, the lender knows if the borrower does not pay, the co-borrower/director will.

I get that.....my answer was meant to be from an ATR/QM perspective...that is, how will it help from an ATR/QM perspective if the grandfather's income isn't being used. I would just say from that ATR/QM perspective, you will have to (IMO) defend the loan strictly on the basis of the facts pertaining to the borrower. I can certainly understand from an S&S standpoint why the lender wouldn't mind the grandfather's co-signing.

Just to reiterate.....i would advise making the grandfather a co-signer, not a co-borrower. As a co-borrower (which again, i don't think you can justify, as he will not be gaining any ownership of the home), you would open the door to needing to include his debts, etc. In reality, it sounds to me like he wants to be a co-signer....that's what i would let him be. JMHO.

I was thinking along those lines too...just needed someone to agree with me. lol

Thank you!