We are considred a small creditor under the ATR rule. We have some loans that were set up on balloon payments that will mature over the next 3 years. I know we are not subject to the 43% cap, but we still have to show that we “considered” DTI. I am concerned about a situation where a balloon loan is up for renewal and the borrower’s circumstances have changed, but they are still making their payments. If their DTI now shows 55%, what are we supposed to do with the loan? Call it? I was thinking maybe non standard to standard, but balloon loans aren’t considered non standard and ARMs are considered non standard…we only offer ARMs in house now.
Section 1026.43 offers 7 options for verifying the borrower’s ability to repay. The small creditor portfolio option that you are attempting to use requires that you consider the consumer’s debt-to-income ratio at or before consummation according to the rules in Section 1026.43(c)(7). That section does not establish a cutoff ratio. You should follow the guidance in your own policy, so if 55% exceeds the limits established in your bank’s policy and procedures then you cannot make the loan.
Your situation does not involve a new loan, it involves a “renewal.” If your renewal involves a new obligation that satisfies and replaces an existing transaction then you must meet the ATR rules. If you are merely extending the term of the loan with a modification or extension agreement the transaction does not have to meet the ATR rules.