Good morning,

I am under the understanding that we are to report Gross Annual Income for our HMDA reporting. Normally we always use paystubs to verify the income of W2 employees. I have a loan officer that is only wanting to use bank statements that is showing the net income for the customer's direct deposits.

The officer is stating that technically that there is a loophole to this in that the difference between the Net and Gross would be considered a portion of their income not relied upon and therefore since we aren't relying on it, we don't have to report it.

I think that since we are using the income from his job, we have to report the gross income and therefore we need the stubs. Can someone offer me any advice here?

Thanks

I'll let a HDMA expert weigh in on your question, but are you not worried about fair lending issues if you are making an exception and since when does a single loan officer set underwriting standards? Is this borrower working under the table and does not have a W-2 or 1099's or tax returns? Maybe they are claiming 100 withholding exemptions on their W-4 and thus it increases their take home pay just to leave them with a huge income tax burden.

I am concerned about why we aren't asking for the stubs. The officer's response was he didn't want to bother the customer with it. The customer banks with us, and he just pulled his statement showing his Direct Deposits. The customer's DTI is low and so the officer doesn't see the big deal about just using the Net income. However, I am pretty sure that if we are relying on the income from the Customer's job, we need to report the Gross income from that job. That is what I am seeing in the regulation for HMDA.

Any HMDA experts out there care to weigh in?

I am no expert, but we report the total income that was relied on to make the credit decision. Generally we take this directly from the underwriting approval. We do not recalculate anything.

Ok. Well thank you both for your help! I am pretty sure that it needs to be gross income reported and I am definitely going to document my objections, but unfortunately, I may be outnumbered on this one.

Amanda, what Randy was alluding to - if applicants were treated differently, then there easily could be a fair lending issue. Suppose (for example) LO was using the deposits rather than the actual paystubs, and the deposits happened to be in cash because the persons were being paid under the table. Lets also suppose (playing devil's advocate) that many of the applicants that the LO "didn't want to bother", had Hispanic surnames.

I could (as well as an examiner) easily surmise that since the bank was evaluating them using a lower amount, this LO was discriminating against Hispanics. LOAN OFFICERS HAVE TO FOLLOW BANK GUIDELINES, NOT VICE VERSA. Sorry for shouting, but certain LO's think they're prima donnas and one of them almost cost a former bank a lawsuit because he made his own (unchecked) exceptions to policy.

I know this has been debated over the years but the regulation does not call for income used to make the credit decision. The regulation specifically requires the gross income relied on.

If the bank policy is to report gross income and one loan officer is using net income then not only is the loan officer violating bank policy they are also putting the bank in position for potential fair lending issues in treating applicants differently. Especially if this loan officer is requiring gross for protected classes and net income for non-protected classes.