We recently went through an internal audit for HMDA. They are stating that we have to prove how we come up with the gross income reported for HMDA for loans that close and can't just take the final numbers from 1008 or from the application. I can't find anywhere that says we have to prove to how we arrived at the final gross income for HMDA listed on the 1008. Any one have any thoughts on this issue?

HMDA doesn't require the calculation of income; it requires you to report what you used in underwriting. Typically, I would consider that to be the gross income used to calculate the DTI. If the income on your 1008 was the amount you used in underwriting, I don't see an issue with that.

That said, your auditors are giving you a "best practice" recommendation as the cleaner the file, the less arguments you will have with examiners down the road. It's not bad advise, it's just not a violation - or required.

Thank you.

I've always taught you need to have proof of everything on your LAR. When it comes to income, the regulation says to report the amount relied upon. The auditors might be able to find the same income on the 1008, but that doesn't mean that is the same number the underwriter/loan officer used. You could have discounted their income because it is overtime or bonus, etc.

As others have said, having documentation to show the source of every entry on the LAR is a compliance internal control. Compliance internal controls are designed to either reduce the risk that regulatory violations will occur or to identify when they have and implement appropriate corrective action. Failure of that control does not mean you have a regulatory violation, but it does mean you have increased potential of violations. If that control is in place and operating effectively, your risk of violations is reduced to acceptable levels.

For conventional loans, we always use either the final 1008 if it's been through full underwriting or we use the income stated on the initial 1003 for applications that didn't make it to underwriting. It's consistent and our OCC field office is happy with our approach. They've never asked us to prove that the final income on the 1008 is accurate. It's the income that underwriting used to approve the loan. They've never objected to using the stated income on the 1003 when an application has been denied out of the gate for credit or withdrawn before getting to underwriting. I used the same approach in a Fed bank that was reporting 20-30,000 applications per year and the Fed had no issues with it either.

Pippii, do you use a 1003/1008 on all consumer purpose dwelling secured loans? What about business purpose loans to individuals that are for purchase, refinance, or home improvement?

We provide a source document to support all entries on our LAR. For income, we will report the final income used in making the decision and support that with our Final DU which will also match our Underwriting Transmittal Sheet that provides the calculation for the final income. On those files that don't make it to a decision we report the stated income on the initial 1003. That would be the income that our processors used while working on the file, but without verifying.