When considering a borrower’s repayment ability, credit unions should address:
►Income or assets. The creditor may consider any type of current or reasonably expected income, including salary or wages, military or reserve-duty income, bonus pay, interest payments, dividends, retirement benefits, and more.
The creditor may consider any of the borrower’s assets other than the value of the dwelling securing the loan. This includes funds in a savings, checking, or retirement account; stocks; bonds; certificates of deposit; and trust funds.
A creditor only needs to consider the income or assets necessary to support a determination that the borrower can repay the loan.
A creditor may determine that a borrower can make periodic loan payments even if the person’s income is seasonal or irregular.
If the creditor determines that the borrower’s annual income divided equally across 12 months is sufficient to make monthly loan payments, the creditor may determine that the borrower can repay the loan.
That’s the case even if the borrower may not receive income during certain months.
►Employment status and income. Full-time employment status is not required, and employment is not required to occur at regular intervals so long as the creditor considers those characteristics of the employment. A creditor must verify a borrower’s current employment status only if the creditor relies on the borrower’s employment income in determining repayment ability.
►Mortgage payments and related obligations. The creditor must consider the new monthly mortgage payment, the monthly payment on any simultaneous mortgage, and payments for property taxes and property insurance premiums (or similar charges the creditor requires).
►Current debt obligations. Examples of current debt obligations include student loans, auto loans, revolving debt, and existing mortgages that will not be paid off at or before consummation. However, a creditor may take into account that an existing mortgage or any other debt is likely to be paid off soon aft er consummation.
►Multiple applicants. When two or more borrowers apply for an extension of credit as joint obligors with primary liability on a loan, a creditor must consider the debt obligations of all joint applicants. If one consumer is merely a surety or guarantor, a creditor is not required to consider the debt obligations of the surety or guarantor.
►Credit history. Credit history may include factors such as the number and age of credit lines; payment history; and any judgments, collections, or bankruptcies. A creditor is not required to consider a consolidated credit score or prescribe a minimum credit score that must be applied.
The rule does not specify which aspects of credit history a creditor must consider or how various aspects of credit history should be weighed against each other or against other underwriting factors.
A creditor may give various aspects of a borrower’s credit history as much or as little weight as is appropriate to reach a good faith determination of repayment ability.
Where a borrower has obtained few or no extensions of traditional credit, a creditor may look to nontraditional credit references, such as rental or utility payment history.
A creditor must verify the information it relies on in determining a consumer’s repayment ability using reasonably reliable third-party records. A creditor may verify the borrower’s income using a tax return transcript issued by the Internal Revenue Service (IRS).
Examples of other records the creditor may use to verify the borrower’s income or assets include, but aren’t limited to:
A creditor must verify records that are specific to the individual. Records regarding average incomes in the consumer’s geographic location or average wages paid by the borrower’s employer are not specific to the individual borrower and must not be used for verification.
A credit report is generally considered a reasonably reliable third-party record for purposes of verifying items such as the borrower’s current debt obligations, monthly debts, and credit history. Records concerning the verification of property taxes are considered reasonably reliable if the information was provided by a government organization or referenced in the title report if the source of the property tax information was a local taxing authority.
If a creditor relies on a borrower’s credit report to verify current debt obligations and the borrower’s application lists a debt not shown on the credit report, the creditor may consider the existence and amount of the debt as stated on the borrower’s application.
To verify credit history, a creditor may look to credit reports from credit bureaus or to reasonably reliable third-party records such as evidence of rental payments or public utility payments.
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