[Angie Cowell]

When we have income of 0 or negative income, our LOS system defaults to 0 for DTI. My question is, do we report 0 or NA for DTI? HMDA states to report NA if you did not rely on DTI in making the credit decision, but you can’t divide by 0 and although you can divide by a negative it does not. We are unable to change this in our system, so if NA is the correct data to report then this is a manual change once we import to our HMDA reporting software. This is a HMDA concern, but also a vendor management concern. I have included clips form the regulation below including the preamble, it states that you do not have to report a DTI ratio if one was not calculated. Is it acceptable to report 0 for DTI in this circumstance or would NA be the correct code to report?
Any insight you can provide is appreciated.
Thank you.

From the Reg:

(23) Except for purchased covered loans, the ratio of the applicant’s or borrower’s total monthly debt to the total monthly income relied on in making the credit decision.

1. General. For covered loans that are not purchased covered loans and that are not partially exempt under § 1003.3(d), § 1003.4(a)(23) requires a financial institution to report the ratio of the applicant’s or borrower’s total monthly debt to total monthly income (debt-to-income ratio) relied on in making the credit decision. For example, if a financial institution calculated the applicant’s or borrower’s debt-to-income ratio twice—once according to the financial institution’s own requirements and once according to the requirements of a secondary market investor—and the financial institution relied on the debt-to-income ratio calculated according to the secondary market investor’s requirements in making the credit decision, § 1003.4(a)(23) requires the financial institution to report the debt-to-income ratio calculated according to the requirements of the secondary market investor.
2. Transactions for which a debt-to-income ratio was one of multiple factors. A financial institution relies on the ratio of the applicant’s or borrower’s total monthly debt to total monthly income (debt-to-income ratio) in making the credit decision if the debt-to-income ratio was a factor in the credit decision even if it was not a dispositive factor. For example, if the debt-to-income ratio was one of multiple factors in a financial institution’s credit decision, the financial institution has relied on the debt-to-income ratio and complies with § 1003.4(a)(23) by reporting the debt-to-income ratio, even if the financial institution denied the application because one or more underwriting requirements other than the debt-to-income ratio were not satisfied.
4. Transactions for which no debt-to-income ratio was relied on. Section 1003.4(a)(23) does not require a financial institution to calculate the ratio of an applicant’s or borrower’s total monthly debt to total monthly income (debt-to-income ratio), nor does it require a financial institution to rely on an applicant’s or borrower’s debt-to-income ratio in making a credit decision. If a financial institution made a credit decision without relying on the applicant’s or borrower’s debt-to-income ratio, the financial institution complies with § 1003.4(a)(23) by reporting that the requirement is not applicable since no debt-to-income ratio was relied on in connection with the credit decision.

From the Preamble:
Proposed § 1003.4(a)(23) does not require reporting the debt-to-income ratio unless the financial institution has calculated and relied upon a debt-to-income ratio in evaluating an application. As discussed above, the debt-to-income ratio is an important aspect in underwriting and reporting this information will provide an important insight into an institution’s credit decision. This information is particularly important when a financial institution denies an application due to the debt-to-income ratio. In addition, as discussed above, a financial institution is not required to report a debt-to-income ratio if it has not calculated the debt-to-income ratio for a particular application. The final rule does not require financial institutions to calculate debt-to-income ratios solely for HMDA reporting purposes. Therefore, the debt-to-income ratio should be reported for applications and originations if the ratio is calculated and relied on by the financial institution in making the credit decision.

[rcooper]

We discussed in this post that you can report “$0” or a negative number for income if that is what was used. As for DTI, I’m not sure there is a clear cut answer. As you noted from the preamble, § 1003.4(a)(23) does not require reporting the debt-to-income ratio unless the financial institution has calculated and relied upon a debt-to-income ratio in evaluating an application.

My interpreation is that if you can’t calculate the DTI (because the income is $0) then it isn’t something you’ve relied on in making the decision and it would be reported as NA. I think that could be different for negative income based on how your bank has calculated and used it for the evaluating the app. I’ve seen others take the stance of using “0” for DTI in these cases.

I’ll ask Jack to weigh in with his thoughts.

[jholzknecht]

I agree with reporting NA for the DTI% in this situation.

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