QM and Guarantor or Comaker

We have an applicant for a mortgage loan subject to QM and ATR, she has poor credit but DTI and the other factors to consider are okay. Dad is apparently willing to serve as a guarantor but my question is, would we need him as a co-borrower (versus a guarantor) to comply with the QM requirements?

You can't count a non-borrower income, but I'm not really sure you couldn't use them for other strengths. So, since your DTI is okay (and I'm assuming reliability of income is okay)I'm thinking you could. The problem with making someone a full borrower is the 'benefit' issue. What benefit would Dad be getting?

Bringing this back up: if the actual borrower's credit score is bad, but their DTI is ok....it still doesn't seem kosher to me under ATR/QM rules to use the co-signers good credit score to make up for the actual borrower's bad credit score. Comments please?

Ability to repay and willingness or often 'responsibility' to repay can be two different things. If they have a trashy credit score, but can well afford their debt obligations, then adding a strong guarantor/co-signor would be a S&S issue, IMMHO.

True story: We actually have a customer that makes a really good salary, can well afford his debt, but CS is in the low 400's. His honest answer for this was...he just really likes to spend money. So, I guess he's so busy spending, that paying the bills on time is just too much time away from shopping and spending?

Having said that, we would not consider a NEW customer, due to breach of policy regarding score cutoffs...but would continue on with a current customer and would likely extend new money based on the facts.

Thanks Joker.....what you said in your first post coincides with my thought......you're right that willingness or responsibility to repay isn't the same as the ability to repay....but BOTH are included in the "ability to repay" provisions of Reg. Z.

So......i'm most concerned about an examiner "failing" us on ATR in this scenario......you don't think it's a concern from that standpoint? (I note your S&S concern.)

Where is the cite you are referring to? Or are you meaning post-loan, where they quickly become in default/delinquent status? That's a different problem.

1026.43(c)(2)(viii): The consumer's credit history.

I'm concerned primarily in this case about compliance (not litigation) risk--that an examiner would look at such a loan (primary borrower with a bad credit score, required co-signer with a good one) and say that the borrower is our consumer and that the co-signers good credit score is irrelevant....the actual borrower has provided the bank with the evidence it needs that they aren't willing (based on their history) to repay the loan, and therefore, fail the test in 1026.43(c)(2)(viii).

(I'm asking...trying to gather information.....not stating a fact. Just a bit concerned/confused on this issue.)

gotcha. Again, we would not consider [or at least I've not seen it happen] a bad score, even with additional strength on anything but a current customer where we have some kind of actual business history.