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When reviewing the ability To Repay on a TRID loan is it ok that a couple of smaller payments that were on a borrower’s credit report are not added into the list of debts to calculate the DTI ratio & as long as it doesn’t affect the DTI very much? We are a small creditor so we do have require our borrower’s DTI be at 43%, although we do aim for that. I am trying to see if it should be written up as an exception.
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From an ATR/QM compliance perspective, I would be cautious about saying it’s “okay” simply because the omitted debts do not materially affect the DTI. This is primarily an Ability-to-Repay (ATR) issue rather than a QM issue on a TRID loan.
ATR requires the creditor to make a reasonable and good-faith determination of the consumer’s ability to repay based on verified and documented information. One of the ATR factors is the consumer’s current debt obligations, alimony, and child support. If debts appearing on the credit report should have been included under your underwriting policy or standard DTI calculation methodology, they generally should be considered in the ATR analysis.
Even as a Small Creditor, you should address this from the perspective that all applicable debt obligations must be evaluated. The question is whether excluding these small payments constitutes an exception to your underwriting requirements. If the answer is yes, I would recommend documenting the exception in the file.
In addition, I would recalculate the DTI including the omitted payments and document that the revised DTI remains within your institution’s acceptable underwriting standards. This demonstrates that the debt obligations were considered and supports the creditor’s reasonable and good-faith ATR determination.
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