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#848847 - 11/05/07 03:26 PM
AGI vs Gross income
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Diamond Poster
Joined: Jan 2004
Posts: 1,621
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We are officially HMDA in Janurary. We are practicing now (all except GMI). A serious question has come up.
We are making a loan to a individual rental tycoon. My loan officer is furious, he relies on AGI and i am telling him "no..it is the gross income that must be recorded on the LAR." His reponse is "you mean i have to add back all the expenses to get gross, when it is AGI that I rely on?" I am telling him "yes" unless someone disagrees.
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#848856 - 11/05/07 03:36 PM
Re: AGI vs Gross income
Burgess
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Diamond Poster
Joined: Jun 2005
Posts: 1,343
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You should report whatever income the lender relied on to make his decision. I guess in this case, it would be AGI.
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#848901 - 11/05/07 04:12 PM
Re: AGI vs Gross income
Burgess
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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203.4
(10) The ethnicity, race, and sex of the applicant or borrower, and the gross annual income relied on in processing the application.
The regulation does not say anything about the AGI income relied on. It requires you to report the gross income relied on.
Whether the loan officer realizes it or not they are using gross income for their decision. The AGI has to be derived from the gross less deductions/expenses. So how can the LO justify they are not using gross income to arrive at the AGI?
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The opinions expressed are mine and they are not to be taken as legal advice.
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#848975 - 11/05/07 05:08 PM
Re: AGI vs Gross income
Dan Persfull
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Diamond Poster
Joined: Jun 2005
Posts: 1,343
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I guess I'm not doing very well in my answers lately, huh?
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#849060 - 11/05/07 06:01 PM
Re: AGI vs Gross income
#12
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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Not really. You do have to rely on the income used, but the Reg does require gross income to be used.
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#849202 - 11/05/07 07:51 PM
Re: AGI vs Gross income
Dan Persfull
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Power Poster
Joined: Mar 2004
Posts: 6,172
Further South than I wanna be.
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I agree with Dan. We have the same problem on the CRA side. The loan officer says "well I relied on net income for my credit decision". Fine, now report the revenues that made up the net income. For HMDA, you report the gross income that made up the AGI.
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Life is not the way it's supposed to be. It's the way it is. The way you cope with it is what makes the difference.
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#849287 - 11/05/07 09:02 PM
Re: AGI vs Gross income
CRAatBOK
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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David, I have not seen any one written up and in day to day operations I would agree with you, but again the reg does state gross income used.
I would also question if this LO relies on AGI for all their borrowers or just this one "real estate tycoon" because he doesn't want to take the time to go through all the numbers to arrive at the gross. That's where I see the biggest potential for reporting problems, using gross income for this borrower because you needed it to qualify the loan, but using AGI for this "tycoon" because the numbers are too difficult to crunch. You are not being consistent in calculating your income. Not only a potential HMDA problem but also a potential fair lending problem.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#849568 - 11/06/07 01:46 PM
Re: AGI vs Gross income
Burgess
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Power Poster
Joined: Jul 2002
Posts: 5,568
New Jersey
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Unless I'm reading HMDA wrong, the reg doesn't tell you what income figure to use, but it definitely tells you to report the income figure that you used.
We have a compliance auditing firm check our HMDA data twice a year, and on the income issue they just want to see that the income we used is what we are reporting in our HMDA data. Only once that I can recall did they question the derivation of income on a file, and that was because we reported zero income (which, as I explained to them, was the primary reason for the denial of the loan!).
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Management is doing things right; leadership is doing the right things. Peter Drucker
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#849575 - 11/06/07 01:57 PM
Re: AGI vs Gross income
Sinatra Fan
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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the reg doesn't tell you what income figure to use, 203.4
(10) The ethnicity, race, and sex of the applicant or borrower, and the gross annual income relied on in processing the application.If the applicant has a gross income of $60,000 and you netted out taxes, other expenses to arrive at a disposable income of $40,000 to use as the basis to calculate the debt to income ratio to make the credit decision, the gross annual income relied on for the decision was $60,000 not $40,000. $40,000 was the net, not the gross. How the examiners, in real life, may look at this will vary. All I am doing is telling you what the Regulation requires. And I also refer you to my tag line.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#850060 - 11/06/07 09:03 PM
Re: AGI vs Gross income
hmdagal
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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Is it possible the emphasis should be on 'relied on in making the credit decision' instead of 'gross annual'? Anything is possible... If one wants to report on AGI then that is a risk they have to decide to take. In most cases it will be a minimal risk. All I am doing is telling you what the Regulation requires. And I also refer you to my tag line.
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The opinions expressed are mine and they are not to be taken as legal advice.
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