Show Your Work!

Written By: Frankie Lacy, Op-Ed Writer

In response to the CFPB’s Ability to Repay (ATR) and Qualified Mortgage (QM) rules, leading investors have instituted a Debt, Income, and Asset Verification Worksheet. This worksheet was created to provide consistency and uniformity in the reporting of underwriter rationale in determining the borrower’s ability to repay. Some lenders are adding this form (or a screen) into their loan origination system. As a result, underwriters must be prepared to alter their process flow to include the completion of this type of form.

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Some of the data points on the form include:
• Verifying what documentation was used to determine qualifying income, asset balances, and liability amounts.
• Verifying the date the documentation was accepted.
• Verifying the expiration date of the documentation.

There is also a section of the form that requires underwriters to enter detailed notes regarding income calculations. Underwriters must literally show their work in the calculation of all qualifying income. An example is:
$14.00 per hour X 40 hours per week = $560.00 per week X 52 weeks = $29,120.00 per year / 12 = $2,426.67 per month.

Be prepared to address overtime, commission, and bonus income in the comments section. Also, ensure that any income that is noted on the documentation, but not used to qualify, is explained. If a more aggressive (or more conservative) income calculation is used, explain what loan factors motivated your decision. Discuss earnings trends, borrower explanations, and the documentation trail in detail.

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In addition, provide the rationale for omission of debts and notes clarifying the audit trail for verification of large deposits. For example, if a debt is omitted due to borrower payment in full, an example statement would be:
“Excluded the Acme revolving debt reporting on credit with a balance of $1,000 due to borrower providing an online printout showing the debt was paid in full. Borrower also provided the January 2014 bank statement with Widget Credit Union that shows the $1,000 withdrawal to Acme dated 1/5/14.”

Ultimately, the purpose of such a worksheet is to provide evidence of ATR and QM compliance. Investors are looking for a transparent and highly visible summary of the underwriter’s calculations and credit decisions. Underwriters must gain confidence and comfort with communicating their loan rationales to all interested parties or be prepared to answer tough questions from investors at the time of loan purchase.

About The Author

Frankie Lacy - As an op-ed writer, Ms. Frankie Lacy is a 15+ year mortgage industry veteran with extensive conventional mortgage underwriting experience. Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration.


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.