Liability Assessment

General Information on Liabilities

The underwriter’s risk analysis must include all liabilities affecting income or assets that will affect the borrower’s ability to fulfill their current mortgage payment obligation.

A borrower’s liabilities include the following:

• housing payment (mortgage or rent) for each borrower’s principal residence,

• all revolving charge accounts,

• installment loan debts with a remaining payment term greater than 10 months,

• installment debts secured by virtual currency,

• lease payments,

• real estate loans,

• HELOCs,

• alimony and child support,

• maintenance payments, and

• all other debts of a recurring nature.

For each liability, the underwriter must determine the unpaid balance, the terms of repayment, and the borrower’s payment history, and verify any other liability that is not shown on a credit report by obtaining documentation from the borrower or creditor.

If the credit report does not contain a reference for each significant open debt shown on the loan application—including outstanding mortgage debt, bank, student, or credit union loans—the originator must provide separate credit verification.

If a current liability appears on the credit report that is not shown on the loan application, the borrower should provide a reasonable explanation for the undisclosed debt. Documentation may be required to support the borrower’s explanation.

If the borrower discloses, or the underwriter discovers, additional liabilities after the underwriting decision has been made, up to and concurrent with closing, the underwriter must reconsider the borrowers risk analysis.