DU uses liabilities from the loan application, not debts from the credit report, to calculate the debt-to-income ratio.
To help ensure that all appropriate liabilities are included in the debt-to-income ratio, DU performs a series of reasonableness tests comparing loan application balances and payments with the credit report balances and payments. If the values on the loan application are less than the values on the credit report by more than selected tolerances, the lender must justify the discrepancies between the two. The lender must update the loan application values if the values are needed to calculate accurate ratios. The information must be updated either with verified values from the credit report or with independent, outside verifications.
The lender can automatically copy the borrower’s liabilities from the credit report to Section VI Liabilities by selecting the auto-populate liabilities option from DU when the credit report is ordered. If the lender’s loan origination system does not offer this option, or if the lender elects not to use it, the liabilities must be entered manually in Section VI Liabilities.
When the auto-populate option is selected, it is not necessary to obtain additional borrower disclosure for tradelines appearing on the credit report. The lender is still required to obtain full disclosure from all borrowers, including borrowers who do not have traditional credit, of all existing credit obligations. Liabilities that do not appear on the credit report, such as monthly housing expenses for taxes, insurance, etc., must be disclosed in Section VI Liabilities prior to final submission to DU.
If the auto-populate liabilities option is selected BEFORE liabilities have been manually entered in the loan application:
Open accounts will be automatically copied to Section VI Liabilities of the loan application.
Closed accounts on the credit report are not automatically copied to the loan application. If the account has an outstanding balance, the lender must manually enter the liability in Section VI Liabilities and include the monthly payment in the debt-to-income ratio.
Collection accounts on the credit report are not automatically copied to the loan application.
If the auto-populate liabilities option is selected AFTER liabilities have been manually entered in the loan application:
DU will attempt to match existing liability accounts listed on Section VI Liabilities of the loan application to the credit report liabilities by using a combination of account name and account number.
Open accounts from the credit report that were not manually entered on the loan application will be automatically copied to the loan application.
DU will use the information on the loan application to calculate the debt-to-income ratio.
If duplicate accounts or accounts that do not belong to the borrower were copied to the loan application and included in the debt-to-income ratio, they may be omitted from Section VI Liabilities. Debts that are omitted will not be counted in the debt-to-income ratio.
The table below provides references to the Announcements that have been issued that are related to this topic.