My synapses may not be firing correctly, but I think I recall some Reg. Z prohibition (or examiner criticism) with regard to obtaining income documentation at the time of mortgage loan application. Can anyone point me to that section of the Reg., if there is one?

Thanks!

Look in the Mortgage Disclosure Improvement Act of July 2008.

I don't recall anything specifically in Z but RESPA states:

The lender is not permitted to require, as a condition for providing a GFE that an applicant submit supplemental documentation to verify the information provided on the application. [§1024.7(a)(5)] …such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator… [RESPA FAQ – GFE General #31]

After the GFE has been received, the loan originator may collect additional fees needed to proceed to final underwriting for borrowers who decide to proceed with a loan from that originator. As noted, at that time, verification information or any other information could be required from the applicant, such as, bank statements and W–2 forms, to confirm representations made by the applicant in the application. [Federal Register 11-17-08, page 68212]

I will piggyback on this since my question is about the same thing.

The RESPA FAQ quoted above has a continuation that reads…

“However, the borrower may voluntarily sign consents prior to the issuance of the GFE to facilitate the loan process.”

We want to include a cover letter with the application that tells the borrower that they MAY submit income documents to facilitate the loan process with the application, but that this request is not mandatory or a condition to issuing a GFE. It will be voluntary. This will be permissible right?

We are looking into this because a lot of customers need help with the application. They usually don’t fill it right and need help determining monthly income, we have a lot of Spanish speaking customer.

There is nothing that says you cannot call them or help them complete the application(form). You just cannot require them to furnish documentation.
The letter, IMO, would not violate RESPA. It probably will not help with the last two sentences of your post.

The only MLO at that branch tells me that her customers always want her to fill the application for them. She usually helps those that really need help, so having income documents while helping the customer makes the process easier, per her statement.

I think that if the FAQ says that you may have them sign the consent voluntarily, we can have them, voluntarily, bring income documents if they want help with the application.

The application doesn't have to be spot on with regard to income. The LO can ask a question like 'how much did you bring home last month' or 'how much did you get paid on your last paycheck' and calculate the income based on that.
The verification comes from the submission of the actual stubs, etc.

Personally, I wouldn't be giving a letter like this to borrowers. But I'm very cautious when it comes to anything I feel I may have to explain too much and/or defend to an examiner.

As long as your MLO does not condition the help with the application on them bringing in the documentation. Do as TR stated, use what they tell you.

That was my thinking as well, defending this with auditor and examiners, but I think I would win…

So if we use debt to income ratios to price loans (and other criteria), and they understate or overstate their income, and we give a GFE with one rate and later you have to adjust based on income changes and DTI, would we need to re-disclose the GFE and TIL with the new rate?

The GFE/TIL early disclosures are only required after you receive the 6 required items. Once you give the GFE, you can require the documents.
If you provide a GFE prior to having all six items, you are locked in to the GFE numbers.

What I meant is that after you receive a complete application, and you issue a GFE, then you get their intent to proceed and income tax return or W2, and you realize that they overstated their income a little, which cause their DTI ratio to increase and their rate as well...would we have a change of circumstance to re-issue the GFE?

Never mind the question above...it would be a change of circumstance.

Well then...Thank you hgliii and Truffle Royale for your input, I know you both are very knowledgeable!