We deal with a lot of farmers and self-employed individuals. We use a Debt Coverage Ratio for our underwriting standards on those applicants because their income/expenses doesn't fit nicely in a standard monthly DTI box. By meeting our DCR ratio requirements, we have considered them as meeting ATR - without actually calculating a DTI.

I was chatting with another compliance person and voiced concern on how our procedures are not really meeting the letter of the regulation, which seems to be looking for a DTI or NRI in all cases - DCR is never mentioned. She said that they use a 2nd set of DTI limits for those farm customers that they use to for the ATR requirements but their credit decision is still made based on the DCR.

Example (this is what I'm conjuring up in my mind):
- Standard W-2 person would need to meet a 40% DTI to meet ATR
- Farmer or self-employed individual would need to meet a 60% DTI to meet ATR - which would equate to a 125% DCR in our underwriting standards.

1. What holes are there in this reasoning?
2. Would Net Residual Income be a better way to determine ATR in these cases? If so, does anyone use the NRI and could give some advice because we don't use it right now as one of our guidelines.
3. Does anyone have another way they are determining ATR on these types of customers?

Disparate impact comes to mind. Why would you hold a blue collar [for example] worker to 40% but allow a farmer/self-employed person 60%?

We calculate a DTI on all loans subject to ATR. Salaried, self, everyone. It's not that difficult.

FWIW, I feel DSCR's have gone way beyond what they once were intended to be. When a DSCR made sense was when you looked at the income vs expense on a specific PROJECT, whether it be rental properties or a strip mall and not an entire global picture of a 'company'.

But, I digress.

I think we have decided to use the NRI for those borrowers where a DCR would be appropriate and run it by our consumer attorney for confirmation. Thanks!