(a) No lender shall make a nonprime home loan unless the lender reasonably believes, at the time the loan is consummated, that one or more of the obligors, when considered individually or collectively, will be able to make the scheduled payments to repay the loan, and to pay related real estate taxes and insurance premiums, based upon a consideration of the obligor's current and expected income, current and expected obligations as disclosed by the obligor, or otherwise known to the lender, including subordinate mortgages made contemporaneously, homeowner's fees, condominium fees, employment status and other financial resources, excluding the equity in the dwelling that secures repayment of the loan. Notwithstanding the provisions of this subsection, in the case of a bridge loan, a lender may consider the equity in the dwelling as a source of repayment for the loan.

(b) A lender's analysis of an obligor's ability to repay under subsection (a) of this section may utilize commercially recognized underwriting standards and methodologies, including automated underwriting systems, provided they comply with the requirements of this subsection and subsection (a) of this section. In determining an obligor's ability to repay a nonprime home loan, the lender shall take reasonable steps to verify the accuracy and completeness of information provided by or on behalf of the obligor using tax returns, consumer reports, payroll receipts, bank records, reasonable alternative methods or reasonable third-party verification. In determining an obligor's ability to repay a nonprime home loan according to its terms when the loan has an adjustable rate feature, the lender shall underwrite the repayment schedule assuming that the interest rate is a fixed rate equal to the fully indexed interest rate at the time of consummation, or within fifteen days thereof, without considering any initial discounted rate. For purposes of this subsection, the “fully indexed rate” means the interest rate that would have been applied had the initial interest rate been determined by the application of the same interest rate formula that applies under the terms of the loan documents to subsequent interest rate adjustments, disregarding any limitations on the amount by which the interest rate may change at any one time. In determining an obligor's ability to repay a nonprime home loan that is not fully amortizing by its terms, the lender shall underwrite the loan based on a fully amortizing repayment schedule based on the maturity set forth in the note.

(c) This section shall not apply to FHA loans.

(P.A. 08-176, S. 23.)

History: P.A. 08-176 effective July 1, 2008.