Appendix Q/ATR: IRA Amortization of Funds

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Question:

I have an appendix Q/ATR question. If a borrower is retired and has pension income from their previous employer and receives Social Security income, but has significant assets in IRA’s that he is not taking distributions from, would it be reasonable to assume an amortization of those funds? For example, an IRA in the amount of $800,000, if he averages earning 3% per year, he could draw $3,373 per month for 30 years. Would this be okay under QM guidelines? With only the pension & Social Security income, the DTI is greater than 43%, but assuming an amortization of the IRA funds would put the DTI below 43%.

Answer:

That should be possible. See the note in Section B of Appendix Q:

Notes:
i. Effective income for consumers planning to retire during the first three-year period must include the amount of:
a. Documented retirement benefits;
b. Social Security payments; or
c. Other payments expected to be received in retirement.

Once they reach age 70 1/2, the IRA distribution is mandatory. However the bank should think long and hard about making such an assumption prior to the mandatory distribution date and whether or not it is in the best interest of the applicant.