QUESTION
Evaluating income is usually a challenge for our underwriters, when considering part-time employment, alimony, child support, separate maintenance, retirement benefits or public assistance. Are there regulatory guidelines that we should be following for such purposes?
ANSWER
Although it certainly must be considered an underwriting requirement, there are also guidelines set forth in the Equal Credit Opportunity Act (ECOA) for evaluating income from part-time employment, alimony, child support, or separate maintenance, retirement befits or public assistance.
Specifically, a creditor may only consider such income on an individual basis – not on the basis of aggregate statistics. Furthermore, a creditor must assess the reliability or unreliability of the income by analyzing actual circumstances and not by analyzing statistical measures derived from a group. [12 CFR Supplement to Part 202 – Official Staff Interpretations § 202.6(b)(5)-1]
For instance, in determining the likelihood of consistent payments of alimony, child support, or separate maintenance, a creditor may consider factors such as:
- Whether payments are received pursuant to a written agreement or court decree;
- The length of time that the payments have been received;
- Whether the payments are regularly received by the applicant;
- The availability of court or other procedures to compel payment; and
- The creditworthiness of the payor, including the credit history of the payor when it is available to the creditor. [12 CFR Supplement to Part 202 – Official Staff Interpretations § 202.6(b)(5)-2]
Jonathan Foxx
Managing Director
Lenders Compliance Group
