Sep 1, 2022 2022-17
MFA Debt to Income (DTI) Overlay Clarification and Revision
MFA recently reassessed its DTI overlay to determine if it has helped achieve the desired effect of reducing delinquencies, and to consider whether it could potentially be eliminated.
Although the DTI overlay has reduced delinquency rates to some extent, it is evident that it must continue to remain in effect and not be eliminated at this time. Keeping delinquencies to a minimum ensures the quality and health of MFA’s loan portfolio and will allow us to expand our down payment assistance programs going forward.
We would like to take this opportunity to revise and clarify MFA’s DTI requirement based on our partner requests for clarity and simplicity regarding scenarios where there is a non-occupying co-signer. The new DTI requirements apply to Uniform Residential Loan Applications (URLA) dated on and after September 15, 2022.
MFA’s DTI overlay applies to all of MFA’s single-family programs including FirstHome and NextHome. This memorandum supersedes any prior memos regarding DTI, including MFA Lender Memos 2021-01 and 2022-04. Loans must still meet current Ginnie Mae, USDA, VA, HUD Section 184, and Fannie Mae guidelines. We understand that this guidance cannot address every potential loan scenario and therefore will continue to provide broad guidance.
Below are two common scenarios explained:
A. For all occupying borrowers DTI is limited to 50.00%, as has been our requirement. MFA’s DTI calculation is based on all the income used by the lender to qualify along with all related debts as reflected on the Automated Underwriting System (AUS) and Loan Transmittal.
| Scenario (1. A) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,000.00 | $ 1,500.00 |
| Co-borrower | $ 2,000.00 | $ 500.00 |
| Total | $ 5,000.00 | $ 1,500.00 |
| MFA DTI CALC | = $1,500.00/5,000.00 | 30.00% | Eligible |
| Scenario (2. A) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,000.00 | $ 1,500.00 |
| Co-borrower | $ 2,000.00 | $ 1,025.00 |
| Total | $ 5,000.00 | $ 2,525.00 |
| MFA DTI CALC | = $2,525.00/5,000.00 | 50.50% | Ineligible >50.00% |
B. Alternatively, if a non-occupying co-signer [1] is added to the loan, the DTI for all occupying borrowers is now limited to 55.00%. The non-occupying co-signer's income and debt is not considered in MFA’s DTI calculation. Only the occupying borrower’s income and debt will be factored into MFA’s DTI calculation.
| Scenario (1. B) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,105.00 | $ 1,295.00 |
| Co-borrower | $ 3,250.00 | $ 2,200.00 |
| Non-Occupying Co-Signer | Not included in MFA calculation |
Not included in MFA calculation |
| Total | $ 6,355.00 | $ 3,495.00 |
| MFA DTI CALC | = $3,495.00/6,355.00 | 54.99% | Eligible |
| Scenario (2. B) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,000.00 | $ 1,295.00 |
| Co-Borrower | $ 3,250.00 | $ 2,200.00 |
| Non-Occupying Co-Signer | Not included in MFA calculation |
Not included in MFA calculation |
| Total | $ 6,250.00 | $ 3,495.00 |
| MFA DTI CALC | = $3,495.00/$6,250.00 | 55.92% | Ineligible >55.00% |
If you encounter a scenario that falls outside the parameters outlined above, please reach out to our team. Please note that such a request may take one business day to review and render a decision.
Increasing the DTI limit in cases involving non-occupying co-signers, creates opportunities for some borrowers that would have otherwise been ineligible to participate in MFA’ Single-family programs. MFA’s focus remains on the borrower’s ability to repay and the likelihood of their long-term success.
There are no exceptions to the DTI requirement.
Should you have questions please contact a member of the homeownership department at 505.843.6880.
Thank you for participating in MFA programs.
[1] MFA defines a non-occupying co-signer as an individual who does not have ownership interest in the property and does not occupy the residence. They serve as a guarantor solely for the debt obligation. Co-signers sign the notes for the first and second lien positions. Non-occupying co-signers are not reflected on title or on the purchase agreement.
