Lending Policy for Loans Secured by a Dwelling And

ABC Credit Union

Lending Policy for Loans Secured by a Dwelling and

Ability to Repay Standards

ABC Credit Union will comply with all applicable federal and state regulations. More particularly, the Credit Union will comply with the requirements of Regulation Z (12 C.F.R. § 1026.43 et seq.) when extending consumer credit secured by a dwelling. Regulation Z defines a dwelling as a residential structure that contains one to four units, whether or not that structure is attached to real property, and further provides that the term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.

Determination of Coverage

Loan applications shall require the applicant to state whether or not the collateral securing the loan is or will be used as a dwelling. A consumer credit transaction secured by a dwelling is referred to in this policy as a “Covered Transaction.”

Determination of an Applicant’s Ability to Repay

When the Credit Union receives an application for a Covered Transaction, the credit union will make a reasonable and good faith determination that the applicant(s) has a reasonable ability to repay the loan according to its terms. In making this determination, the Credit Union will consider the following factors:

The applicant’s current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan
If the Credit Union relies on income from the applicant’s employment in determining repayment ability, the applicant’s current employment status
The applicant’s monthly payment on the Covered Transaction, calculated in the manner provided by the regulation
The applicant’s monthly payment on any simultaneous loan that the Credit Union knows or has reason to know will be made, calculated in the manner provided by the regulation and as specified in the Credit Union’s procedures
The applicant’s monthly payment for mortgage-related obligations
The applicant’s current debt obligations including alimony and child support
The applicant’s monthly debt-to-income ratio or residual income calculated in the manner provided by the regulation
The applicant’s credit history; [AND]
[OTHER AS DETERMINED BY THE CREDIT UNION].

Verification of Information

The Credit Union will verify the information it relies upon to determine the applicant’s ability to repay using reasonably reliable third-party records. More particularly, the Credit Union will verify an applicant’s income and assets using third-party records that provide reasonably reliable evidence of the applicant’s income or assets such as:

Copies of tax returns the applicant has filed with the IRS or a State taxing authority
IRS Form W–2s or similar IRS forms used for reporting wages or tax withholding
Payroll statements, including military Leave and Earnings Statements
Financial institution records
Records from the applicant’s employer or a third-party that obtained information from the employer
Records from a federal, state, or local government agency stating the applicant’s income from benefits or entitlements
Receipts from the consumer’s use of check cashing services
Receipts from the consumer’s use of a funds transfer service
[OTHER AS DETERMINED BY THE CREDIT UNION].

The Credit Union [may]/[may not] verify the applicant’s employment status orally. [If the Credit Union verifies employment status orally, it will make a record of the information obtained and place the record in the applicant’s file.] The Credit Union [may] / [may not] verify the applicant’s current debt obligations using a credit report [that is no more than __ months old]. The Credit Union [will]/[will not] independently verify any debt obligation stated on the application that does not appear on the applicant’s credit report.

Calculation of Payment on the Covered Transaction

For loans that do not have a balloon payment, interest-only option or negative amortization, the Credit Union will calculate the monthly payment on the Covered Transaction using

the fully indexed rate or the introductory rate, if any, whichever is greater, and
monthly, fully amortizing payments

The monthly payment on a Covered Transaction that has a balloon payment will be calculated using either the maximum payment scheduled during the first five years after the date on which the first regular periodic payment will be due for a loan that is not a higher-priced Covered Transaction, or the maximum payment in the payment schedule, including any balloon payment, for a higher-priced Covered Transaction.

The monthly payment on a Covered Transaction that is an interest-only loan will be calculated using the fully indexed rate or any introductory interest rate, whichever is greater, and substantially equal, monthly payments of principal and interest that will repay the loan amount over the term of the loan remaining as of the date the loan is recast.

The monthly payment on a Covered Transaction that has a negative amortization will be calculated using the fully indexed rate or any introductory interest rate, whichever is greater, and substantially equal, monthly payments of principal and interest that will repay the maximum loan amount over the term of the loan remaining as of the date the loan is recast.

Calculation of Payment for Simultaneous Loans

The Credit Union will calculate the payment on any simultaneous loan according to the standards set forth above for calculating the payment on a Covered Transaction or, for a simultaneous loan that is a home equity line of credit, by using the periodic payment required under the terms of the plan based on the amount of credit to be drawn at or before consummation of the covered transaction.

Calculation of Monthly Debt-to-Income Ratio

For Covered Transactions for which the Credit Union considers the applicant’s monthly debt-to-income ratio to determine the applicant’s ability to repay, the ratio will be calculated by dividing the applicant’s total monthly debt obligations by the applicant’s total monthly income.

The applicant’s total monthly debt obligations is the sum of the payment on the covered transaction, as calculated above,the payment on any simultaneous loan, as calculated above, mortgage-related obligations, calculated as required by the regulation, and current debt obligations, alimony, and child support.

The applicant’s total monthly income is the sum of the applicant’s current or reasonably expected income, including income from assets other than the dwelling securing the Covered Transaction and any real property attached to the dwelling.

Calculation of Monthly Residual Income

For Covered Transactions for which the Credit Union considers the applicant’s monthly residual income to determine the applicant’s ability to repay, the applicant’s monthly residual income will be calculated by subtracting the applicant’s total monthly debt obligations from the applicant’s total monthly income.

Qualified Mortgages

[The Credit Union will only make Covered Transactions that meet the requirements of a Qualified Mortgage as defined by the regulation]/[The Credit Union may make Covered Transactions that meet the requirements of a Qualified Mortgage as defined by the regulation and that do not meet the requirements of a Qualified Mortgage].

When the Credit Union makes a Covered Transaction, the loan will meet the requirements to be considered a Qualified Mortgage and, more particularly:

Provide for regular periodic payments that are substantially equal (except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage) that do not result in an increase in the principal balance, allow the borrower to defer repayment of principal or result in a balloon payment (except as provided in this policy [FOR CREDIT UNIONS THAT SERVE RURAL OR UNDERSERVED COMMUNITIES AND ARE EXEMPT FROM THE REQUIREMENT TO ESTABLISH ESCROW ACCOUNT UNDER § 1026.35(b)(2)(iii)(A), (B), and (C) of Regulation Z])
Have a term of no more than thirty (30) years
Have total points and fees that do not exceed the maximums set forth below
Be underwritten taking into account the monthly payment for mortgage-related obligations using
The maximum interest rate that may apply during the first five (5) years after the date on which the first regular periodic payment will be due, AND
Periodic payments of principal and interest that will repay either
The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate set forth above, assuming the consumer will have made all required payments as due prior to that date; OR
The loan amount over the loan term

The borrower’s debt-to-income ratio will not exceed forty-three percent (43%) on a Covered Transaction. The borrower’s debt-to-income ratio will be determined in accordance with appendix Q of the regulation using the borrower’s monthly payment on the covered transaction, including the monthly payment for mortgage-related obligations calculated as set forth above, and the borrower’s monthly payment on any simultaneous loan calculated as set forth above.

Before closing,the Credit Union will consider and verify, as applicable,the borrower’s current or reasonably expected income or assets (excluding the value of the dwelling and any real property attached to the dwelling) that secures the loan, and the borrower’s current debt obligations including alimony and child support, in accordance with appendix Q of the regulation.

Total points and fees on a Covered Transaction shall not exceed the maximums prescribed in the following table:

Loan Amount / Maximum Points and Fees
$100,000.00 or Greater / 3% of the Total Loan Amount
$60,000.00 - $99,999.99 / $3,000.00
$20,000.00 – 59,999.99 / 5% of the Total Loan Amount
$12,500.00 - $19,999.99 / $1,000.00
Less than $12,500.00 / 8% of the Total Loan Amount

The Credit Union may make a Covered Transaction that meets the special rules for loans eligible for purchase, guarantee or insurance by a federal government or quasi-government agency set forth in the regulation until such time as any sunset of the special rules takes place as provided by the regulation. The Credit Union will ensure that the Covered Transaction meets the requirements of the special rules, and more particularly, that the loan:

Provides for regular periodic payments that are substantially equal (except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage) that do not result in an increase in the principal balance, allow the borrower to defer repayment of principal or result in a balloon payment (except as provided in this policy [FOR CREDIT UNIONS THAT SERVE RURAL OR UNDERSERVED COMMUNITIES AND ARE EXEMPT FROM THE REQUIREMENT TO ESTABLISH ESCROW ACCOUNT UNDER § 1026.35(b)(2)(iii)(A), (B), and (C) of Regulation Z])
Has a term of no more than thirty (30) years
Has total points and fees that do not exceed the maximums set forth above

Qualified Mortgages[FOR CREDIT UNIONS WITH LESS THAN $2 BILLION IN ASSETS AND 500 OR FEWER FIRST-LIEN COVERED TRANSACTIONS ORIGINATED IN THE PREVIOUS YEAR]

When the Credit Union makes a Covered Transaction, the loan will meet the requirements to be considered a Qualified Mortgage and, more particularly:

Provide for regular periodic payments that are substantially equal (except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage) that do not result in an increase in the principal balance, allow the borrower to defer repayment of principal or result in a balloon payment (except as provided in this policy [FOR CREDIT UNIONS THAT SERVE RURAL OR UNDERSERVED COMMUNITIES AND ARE EXEMPT FROM THE REQUIREMENT TO ESTABLISH ESCROW ACCOUNT UNDER § 1026.35(b)(2)(iii)(A), (B), and (C) of Regulation Z])
Have a term of no more than thirty (30) years
Have total points and fees that do not exceed the maximums set forth below
Be underwritten taking into account the monthly payment for mortgage-related obligations using
The maximum interest rate that may apply during the first five (5) years after the date on which the first regular periodic payment will be due, AND
Periodic payments of principal and interest that will repay either
The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate set forth above, assuming the consumer will have made all required payments as due prior to that date; OR
The loan amount over the loan term

The borrower’s debt-to-income ratio will not exceed [INSERT PERCENTAGE – NOT SUBJECT TO THE 43% LIMIT UNDER THE GENERAL RULE] on a Covered Transaction. The borrower’s debt-to-income ratio [WILL] / [MAY, BUT NEED NOT,] be determined in accordance with appendix Q of the regulation using the borrower’s monthly payment on any simultaneous loan calculated as set forth above and the borrower’s monthly payment on the covered transaction, including the monthly payment for mortgage-related obligations calculated using

The maximum interest rate that may apply during the first five (5) years after the date on which the first regular periodic payment will be due, AND
Periodic payments of principal and interest that will repay either
The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate set forth above, assuming the consumer will have made all required payments as due prior to that date; OR
The loan amount over the loan term

A Covered Transaction [will not be subject to a commitment to be acquired at the time of closing] / [may be subject to commitment to be acquired by a person who, as of the previous year end, had total assets of less than $2 billion and originated no more than 500 Covered Transactions secured by a first lien].

Total points and fees on a Covered Transaction shall not exceed the maximums prescribed in the table above.

Provides for regular periodic payments that are substantially equal (except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage) that do not result in an increase in the principal balance, allow the borrower to defer repayment of principal or result in a balloon payment (except as provided in this policy [FOR CREDIT UNIONS THAT SERVE RURAL OR UNDERSERVED COMMUNITIES AND ARE EXEMPT FROM THE REQUIREMENT TO ESTABLISH ESCROW ACCOUNT UNDER § 1026.35(b)(2)(iii)(A), (B), and (C) of Regulation Z])
Has a term of no more than thirty (30) years
Has total points and fees that do not exceed the maximums set forth above

Covered Transactions Having a Balloon-Payment[FOR CREDIT UNIONS SERVING RURAL OR UNDERSERVED COMMUNITIES]

The Credit Union may make Covered Transactions that have a balloon-payment according to this policy and the requirements of the regulation to be considered a balloon-payment qualified mortgage.

When the Credit Union makes a Covered Transaction that has a balloon-payment, the loan will meet the requirements to be considered a Balloon-Payment Qualified Mortgage according to the regulation and, more particularly:

Provide for regular periodic payments that are substantially equal (except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage) that do not result in an increase in the principal balance
Have a term of no more than thirty (30) years
Have total points and fees that do not exceed the maximums set forth above

Before closing,the Credit Union will consider and verify, as applicable,the borrower’s current or reasonably expected income or assets (excluding the value of the dwelling and any real property attached to the dwelling) that secures the loan, and the borrower’s current debt obligations, alimony, and child support, but without regard to the standards in appendix Q of the regulation.