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We have a borrower and his cosigners are pledging farm land for a consumer purpose loan. We know we have to disclose as a home equity since none of the other purposes fit, but do we have to disclose the taxes and insurance and use them in calculating the ATR? The borrower will not be paying either of these, the cosigners will. If we have to disclose how do we disclose?
This is a unique situation and there isn’t anything in the regulation that specifically addresses it as far as I know. Also, I am assuming the co-signer is a co-signer and not a co-borrower. With that said, I believe the taxes and insurance would be disclosed because the farm is securing the transaction and they have to be paid. It is the borrower’s responsibility to ensure they are paid (and could fall to him/her) so I would suggest disclosing them as you would if the property was owned by the borrower.
As for ATR, if the co-signer isn’t a co-borrower then you don’t need to worry about their debt, income or obligation as part of the ATR calculation. To ensure you consider the co-signer properly, you should underwrite them separately in order to know if they are beneficial to the transaction. But in the end, the borrower should meet the ATR requirements on his/her own without a co-signer – if he/she needs a co-signer it is likely he/she doesn’t meet the ATR requirements.
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