In our view, the 2015 HMDA Final Rule excludes potential asset annuitization and depletion from income reporting. Does that mean that asset annuitization and depletion also should not be used for debt-to-income ratio reporting?

No, we believe that calculations of the potential annuitization or depletion of an applicant’s assets may be included in debt-to-income HMDA reporting, pursuant to the 2017 HMDA Final Rule that was published in September 2017.

We agree that the official comments to Regulation C require reporting institutions to exclude the potential annuitization or depletion of an applicant’s assets when reporting an applicant’s income. However, the 2017 HMDA Final Rule clarified that those official comments do not affect the requirements for reporting an applicant’s debt-to-income ratio. Consequently, we believe that a bank may choose to include potential annuitized and depleted assets in the debt-to-income ratio calculation reported under HMDA.

For resources related to our guidance, please see:

2017 HMDA Final Rule, 82 Fed. Reg. 43088, 43109 (September 13, 2017) (“The Bureau is adopting the clarifying language in comment 4(a)(10)(iii)-4 as proposed, providing that a financial institution does not include as income amounts considered in making a credit decision based on factors in addition to income, such as amounts derived from underwriting calculations of the potential annuitization or depletion of an applicant’s remaining assets. . . . In addition, to avoid confusion and facilitate compliance, the Bureau also adopts the proposed language clarifying that the comment’s interpretation of income does not apply to § 1003.4(a)(23) as adopted in the 2015 HMDA Final Rule, which requires, except for purchased covered loans, the collection of the ratio of the applicant's or borrower's total monthly debt to the total monthly income relied on in making the credit decision.”)

Official Comments, Regulation C, 12 CFR 1003, Paragraph 4(a)(10)(iii), Comment 4 (“A financial institution does not include as income amounts considered in making a credit decision based on factors that an institution relies on in addition to income, such as amounts derived from underwriting calculations of the potential annuitization or depletion of an applicant's remaining assets. Actual distributions from retirement accounts or other assets that are relied on by the financial institution as income should be reported as income. The interpretation of income in this paragraph does not affect § 1003.4(a)(23), which requires, except for purchased covered loans, the collection of the ratio of the applicant's or borrower's total monthly debt to the total monthly income relied on in making the credit decision.”)

Official Comments, Regulation C, 12 CFR 1003, Paragraph 4(a)(23), Comment 1 (“For covered loans that are not purchased covered loans, § 1003.4(a)(23) requires a financial institution to report the ratio of the applicant’s or borrower’s total monthly debt to total monthly income (debt-to-income ratio) relied on in making the credit decision. For example, if a financial institution calculated the applicant’s or borrower’s debt-to-income ratio twice—once according to the financial institution's own requirements and once according to the requirements of a secondary market investor—and the financial institution relied on the debt-to-income ratio calculated according to the secondary market investor's requirements in making the credit decision, § 1003.4(a)(23) requires the financial institution to report the debt-to-income ratio calculated according to the requirements of the secondary market investor.”)