CmmlConstruction loan for spec home--Brwrs are husband and wife-no corporation involved. Wife has signed joint intent, so that is all good. The loan is guaranteed by the mother who is a secretary of a building company, but the building company is not a part of the loan at all. Can the mother guarantee this loan or should she have been a co-brwr? My information says:
"Reg B prohibits a lender from requiring the spouse of a brwr of the spouse of a guarantor to guarantee a loan. A lender may require the insiders or shareholders of a corporation to guarantee a loan to a corporation, but it may not also require the guarantee of the spouses of those persons (unless the spouse is also an insder or a shareholder)" How does this relate to my scenario?

If the mother offered to guarantee, or the bank required an additional guarantor and the mother offered, it is allowed.

The bank cannot say who they want to guarantee, but she can offer.

Her relationship to her son is deemed to be the consideration for her financial liability, what she gets out of it.

If the loan needs a guarantor, you can ask for one. You can't tell the borrower who to ask, though. If the borrower's mother volunteers, that's fine. I'd get intent from her as well.

The cite you have refers to loans to a corporation. Banks can require insiders/shareholders of companies to guarantee loans when the borrower is the business. But that doesn't really apply here since your loan is to individuals, not a business.


ETA: KB beat me to it!

Your Bank is going to make a spec construction loan to someone that needs a guarantor? Not compliance related, but I can't believe the S&S examiners are going to be very enthused about that decision.

Also, your guarantors should actually add value to the loan.

Ok, that's the thought process I had also, as far as it being ok to guarantee (loan specific) for a family member. Rl, yes, I wonder about the guarantor situation too, but the tax returns of the mother show she adds a great deal of value to the loan, and it looks like she's trying to pull her son into the business.
KB, are you saying as a guarantor the difference between the mother's guarantee or a spouse's guarantee would have to do with if she is reaping the benefit of the loan as compared to just providing financial stability?

No. I am saying any guarantor should add financial strength, other than when bank requires all corp officers to guarantee. Otherwise it seems like bank insisted on spouse/family member regardless. Unless totally voluntary (not required) there should be financial need for guarantor.