An FDIC examiner has advised us that if we have any loans with an exception (such as a loan-to-value (LTV) or debt-to-income (DTI) ratio exception), we need to notify our Board of the exception. Is this accurate? Our board would have already approved the loans.

We are not aware of any requirement to notify your board of directors of individual loans with LTV or DTI ratio exceptions after the loans have been approved. However, you are required to report the aggregate amount of loans with LTV ratios that exceed the statutory LTV limits to your board, at least quarterly.

The Interagency Guidelines outlining the calculation and reporting of LTV ratios provide that banks may originate or purchase loans with LTV ratios exceeding the supervisory LTV limits based on other credit factors. In such cases, these loans “should be identified in the institution’s records, and their aggregate amount reported at least quarterly to the institution’s board of directors.”

For consumer credit transactions secured by dwellings, Regulation Z requires creditors to assess the consumer’s ability to repay the loan, requiring consideration of the “consumer’s monthly debt-to-income ratio or residual income,” among several other factors. Regulation Z’s Official Interpretations state that creditors may determine the “appropriate threshold for a consumer’s monthly debt-to-income ratio or monthly residual income,” but it does not require reporting loans that exceed your internal threshold to the board.

For resources related to our guidance, please see:

12 CFR Part 365, Subpart A, Appendix A, Interagency Guidelines for Real Estate Lending Policies — Loans in Excess of the Supervisory Loan-to-Value Limits (“The agencies recognize that appropriate loan-to-value limits vary not only among categories of real estate loans but also among individual loans. Therefore, it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits, based on the support provided by other credit factors. Such loans should be identified in the institution’s records, and their aggregate amount reported at least quarterly to the institution’s board of directors. (See additional reporting requirements described under ‘Exceptions to the General Policy.’)”)

Regulation Z, 12 CFR 1026.43(b)(1) (“For purposes of this section: . . . Covered transaction means a consumer credit transaction that is secured by a dwelling, as defined in § 1026.2(a)(19), including any real property attached to a dwelling, other than a transaction exempt from coverage under paragraph (a) of this section.”)

Regulation Z, 12 CFR 1026.43(c)(1) (“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.”)

Regulation Z, 12 CFR 1026.43(c)(2)(vii) (“Except as provided otherwise in paragraphs (d), (e), and (f) of this section, in making the repayment ability determination required under paragraph (c)(1) of this section, a creditor must consider the following: . . . (vii) The consumer’s monthly debt-to-income ratio or residual income in accordance with paragraph (c)(7) of this section; . . .”)

Regulation Z, Official Interpretations, Paragraph 43(c)(7), Comment 1 (“Under § 1026.43(c)(2)(vii), the creditor must consider the consumer's monthly debt-to-income ratio, or the consumer’s monthly residual income, in accordance with the requirements in § 1026.43(c)(7). Section 1026.43(c) does not prescribe a specific monthly debt-to-income ratio with which creditors must comply. Instead, an appropriate threshold for a consumer's monthly debt-to-income ratio or monthly residual income is for the creditor to determine in making a reasonable and good faith determination of a consumer’s ability to repay.”)

Regulation Z, Official Interpretations, Paragraph 43(c)(7), Comment 3 (“The creditor may consider factors in addition to the monthly debt-to-income ratio or residual income in assessing a consumer’s repayment ability. For example, the creditor may reasonably and in good faith determine that a consumer has the ability to repay despite a higher debt-to-income ratio or lower residual income in light of the consumer’s assets other than the dwelling, including any real property attached to the dwelling, securing the covered transaction, such as a savings account. The creditor may also reasonably and in good faith determine that a consumer has the ability to repay despite a higher debt-to-income ratio in light of the consumer’s residual income.”)