[SMcNeal]

The getting it right guide for 2022 states to report the “income relied on in making the credit decision.” We have a business purpose loan made to a natural person. The officer states, “Gross Income from XXXX Construction was $279M.” This income was taken from a “Business Return”.

We came across training material that said to only use the income of the individual for a business purpose loan to a natural person. Essentially, we have talked ourselves into a circle. Should income in this instance only be reported if the income was derived from personal Tax Returns? Or the income used in the credit decision which derived from the business return?

Thank you in advance for your assistance!

[pparks]

Do your policies allow for the consideration of business income in the place of personal income? Are they referencing a line item on the business tax return stating that is the applicant’s personal income? What does your Chief Credit Officer or one from their team say on this? What is the specific purpose of the loan as I am sure the collateral is a residential dwelling? Is the applicant a builder and this is related to their business and not themselves personally? Am I correct when I say the subject loan is NOT construction-only? Your inquiry is loaded and with a lot of unknown variables.

[jholzknecht]

Section 1003.4(a)(10) requires the collection of the following information about the applicant or borrower:
i. Ethnicity, race, and sex, and whether this information was collected on the basis of visual observation or surname;
ii. Age; and
iii. Except for covered loans or applications for which the credit decision did not consider or would not have considered income, the gross annual income relied on in making the credit decision or, if a credit decision was not made, the gross annual income relied on in processing the application.

Comment 4(a)(10) (iii) states, “When a financial institution evaluates income as part of a credit decision, it reports the gross annual income relied on in making the credit decision. For example, if an institution relies on the verified gross income of the applicant in making the credit decision, then the institution reports the verified gross income.”

A review of available HMDA resources does not include a statement to only use the income of the individual for a business purpose loan to a natural person.

If the income relied on is the gross income of the business, then that income is reported. The author notes that using the income of a business, rather than the income of the individual, in a loan to an individual is not typical.

[SMcNeal]

Thank You Jack!

[Author]

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