We have three in-house products with DTI's above 43%. I am performing loan monitoring and have found a file where the DTI exceeded our maximum policy by a substantial amount. This was approved by credit administration. I have searched the regulation and am unable to find where either this is acceptable - or unacceptable. I thought I remembered that bank's could have in-house products that may exceed this threshold (and not be a QM); however banks are prohibited from exceeding the internal parameters. Am I mistaken?

Thanks!

Close as you are going to get:

Official Interpretation
43(c) Repayment ability.
43(c)(1) General requirement.

So long as creditors consider the factors set forth in § 1026.43(c)(2) according to the requirements of § 1026.43(c), creditors are permitted to develop their own underwriting standards and make changes to those standards over time in response to empirical information and changing economic and other conditions. Whether a particular ability-to-repay determination is reasonable and in good faith will depend not only on the underwriting standards adopted by the creditor, but on the facts and circumstances of an individual extension of credit and how a creditor's underwriting standards were applied to those facts and circumstances. A consumer's statement or attestation that the consumer has the ability to repay the loan is not indicative of whether the creditor's determination was reasonable and in good faith.

Thank you, Randy.

I really don't care for what occurred, but if I can't find something specific that states it's a violation of a regulatory requirement then I can't put it in the report.

DTI exceeded our maximum policy by a substantial amount

It all depend on facts and circumstance and the fair lending can of worms this presents - which the creation of an outlier probably has the biggest risks.

As you stated and Randy re-typed above, your Bank broke it's own policy. While it is not a regulatory violation as long as the Ability to Repay was satisfied , it seems an exception to policy was made and should be properly tracked. You don't track the exception it can possibly open up fair lending questions as to why this person was able to receive such a loan.

"I really don't care what occurred" - As you probably know, satisfying the Ability to Repay does not have to be based on DTI alone. If the borrower has a lot of assets saved or if the borrower while having so much debt makes so much money they may still have enough residual income to qualify but it all should be documented in a way that you shouldn't have to question it because your answer should be right there in front of you. So what occurred should matter.

I personally would have it listed in my report if the exception was not tracked which most likely would need approval from your board. But this is just my opinion. Hope this helps.