Do you agree that income of guarantor cannot be used to determine applicant’s ability to repay?
Found the following on BOL – posted by Don Persfull
See the Commentary to 1026.43(c)(2)(vi)(2).
A guarantor’s income isn’t used to qualify the applicant for the loan. The guarantor’s income/assets would be used to see if they have the ability to repay the loan if they have to. Their income/assets have nothing to do with the applicant’s ability to repay.
(c) Repayment ability. (1) General requirement. A creditor shall not make a loan that is a covered transaction unless the creditor makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.
(11) Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest.
From the commentary to 1026.2
1. Scope. Guarantors, endorsers, and sureties are not generally consumers for purposes of the regulation, but they may be entitled to rescind under certain circumstances and they may have certain rights if they are obligated on credit card plans.
Thanks for submitting this thoughtful, well researched question.
I agree fully with Dan’s comments. Let me add one small distraction. Fannie and Freddie give some small credit to income from a guarantor. The borrower must be able to meet a 43% DTI ratio on their own, but the total DTI ratio could increase to 45% with income of the guarantor. This information only impacts a loan made under the Special QM rules under Section 1026.43(e)(4).