QUESTION
We went through a state banking audit and were cited for requiring
applicants to provide their income certain sources other than employment
income. How are we supposed to underwrite loans if we don’t get that kind of
information?
ANSWER
You do not specify the other sources of income in your question.
However, a creditor may not inquire whether income stated in an application is
derived from alimony, child support, or separate maintenance payments unless
the creditor discloses to the applicant that such income need not be revealed
if the applicant does not want the creditor to consider it in determining the
applicant’s creditworthiness. [12 CFR § 202.5(d)(2)]
Regulation B, the implementing regulation of ECOA, provides a model
application form to illustrate how income information may be requested
consistent with this restriction. [12 CFR Part 202, Application B; 12 CFR
Supplement I to Part 202 – Official Staff Interpretations § 202.5(d)(2)-1)]
Note that one of the model forms is a version of the URLA application from
January 2004, which is not the current conversion of the form specified by
Fannie and Freddie.
A general inquiry about the source of income may lead an applicant to
disclose alimony, child support, or separate maintenance income. So, a creditor
that makes a general inquiry about the source of income should preface the
request with the required disclosure about income from alimony, child support,
or separate maintenance. [12 CFR Supplement I to Part 202 – Office Staff
Interpretations § 202.5(d)(2)-2]
However, must the foregoing disclosure regarding income from alimony,
child support, or separate maintenance be made for all requests of income?
Actually, No. If an inquiry about income is specific and worded in a way that
is unlikely to lead the applicant to disclose the fact that income is derived
from alimony, child support, or separate maintenance payments, the disclosure
regarding income from alimony, child support, or separate maintenance is not
required. For instance, a creditor in an application form could ask about
specific types of income such as salary, wage or investment income without
providing the disclosure. [12 CFR Supplement I to Part 202 – Official Staff
Interpretations § 202.6(b)(8)-1]
Jonathan Foxx
President & Managing Director
Lenders Compliance Group
