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#31121 - 09/05/02 02:52 PM Alimony
Anonymous
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When figuring a persons income can alimony be grossed up. The govt. allows us to gross up Social Security.

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Lending Compliance
#31122 - 09/05/02 11:05 PM Re: Alimony
Lucy Griffin Offline

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Lucy Griffin
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Yes. But so far, there has not been discussion requiring that. Because it is tax-free income, grossing it up is appropriate. Particularly if the applicant-recipient is low-income, grossing it up would be the best approach. Someday you might be asked why such income wasn't grossed up. If that question is asked in the context of fair lending, you could have a problem.

As an additional consideration, only gross up alimony that has been proved as reliable.

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#31123 - 09/06/02 05:16 AM Re: Alimony
Princess Romeo Offline

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Um... I'm not a tax expert, but as I recall, alimony IS taxable income. Child support, on the other hand, is not.
Someone please correct me if I'm wrong on this.
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#31124 - 09/06/02 11:55 AM Re: Alimony
NMB Offline
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Southeast Michigan
We had an FDIC compliance exam recently and were criticized because one l mortgage lender did not gross up non-taxable income will others did.
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#31125 - 09/06/02 12:43 PM Re: Alimony
rlcarey Online
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rlcarey
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Galveston, TX
Bonnie, I agree, if you doubt it look at line 11 on a 1040. NMB really hit the nail on the head though - you have to make sure everyone is doing the same thing or you risk getting cross-wise in a fair lending exam.
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#31126 - 09/06/02 01:39 PM Re: Alimony
Betty Banker Offline
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I think you're right Bonnie. For the alimony payer, it's an adjustment to income; for the recipient, it's taxable income. However, it's also included in the Other Income (voluntary but not required) portion of a standard credit app. So, if payments are questionable, one might not want to rely on it for loan repayment purposes.

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#31127 - 09/06/02 05:10 PM Re: Alimony
Princess Romeo Offline

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Where the heart is
Betty - this is my understanding with respect to alimony if an applicant wishes it to be considered on the credit application:

The bank can verify alimony if it normally verifies income. IOW, if you normally verify employment income, then you can verify alimony such as getting a copy of the court order and recent evidence that payment was received. You cannot apply any more onerous requirement on alimony than you would on any other source of income.

With respect to grossing up alimony - if that income is taxable, I would think you would have a compliance problem the other way - treating taxable income as non-taxable!

Just like collecting government monitoring information, there's no fail safe method that you can use every time. (i.e. you cannot collect monitoring information on every loan just to be safe.) You gross up income when it's non-taxable, but you do NOT gross it up if its taxable.
_________________________
CRCM,CAMS
Regulations are a poor substitute for ethics.
Just sayin'

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#31128 - 09/09/02 05:28 PM Re: Alimony
Lucy Griffin Offline

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Lucy Griffin
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Actually, Bonnie, you are right (as usual) about the alimony. Don't know what I was thinking. I was in a different time zone, literally. Alimony is taxable to the recipient and not to the payor. It literally comes off the top of the payor's income. Child support, however, is non-taxable, I believe. But then, I'm still a bit jet lagged.

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#31129 - 09/09/02 05:30 PM Re: Alimony
Lucy Griffin Offline

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Lucy Griffin
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What to do with non-taxable income (which does not include alimony!) should be part of your underwriting procedures. Everyone should treat it the same way.

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