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Complete Full Cash Flow? Ability to Repay Rules

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Question: 
We currently have a consumer in the permanent financing phase of a construction/permanent loan. There was no guarantee we would provide the permanent financing at our bank. When construction was approved the borrower was considered self-employed. He owned two businesses and within the last year has sold a large portion of his businesses and now receives a salary as a manager, rather than an owner. Do we need to complete a full cash flow on this borrower, or could we use the current income received from his salary for ability to repay rules?
Answer: 

The answer to some extent depends on whether you are underwriting ATR using Appendix Q (QM), underwriting using Fannie/Freddie eligibility criteria (QM), or underwriting using the Reg Z eight factors (non-QM). Also, to what extent might his cash reserves have increased as a result of the sale of the two businesses? Reg Z requires ATR be determined by a combination of income and assets.

First published on 02/10/2019

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