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#149576 - 01/13/04 09:53 PM Required signatures & business lending
Geoz Offline
100 Club
Joined: Apr 2003
Posts: 148
Colorado
This came to my attention during a HMDA refresher today...we were discussing the collection of GMI and reporting income when the applicant is not a natural person. In many of our business loans the borrower is a non-natural entity AND an individual. How do you report GMI and income? Do I "assume" (what a nasty word) the primary borrower is the business entity and report NA? In my past life, these would have been loans to the business entity and the business indivual would have been asked to personally guarantee the loan. Here, our bank's lending policy provides..."any owner of a business which applies for a loan, whose ownership is 20% or more of the enterprise, will be personally liable for the loans of that business." I think the policy is alright, but am concerned by this practice of making the individual a co-borrower rather than a personal guarantor.

For example, a promissory note reflects the borrowers as "Jensen Auto and Bill Jensen. Prior to 2003 we did not require a written business application so it was less clear how the customer was applying. Now, we require written business applications as well as consumer. Joint applicant express their "intent" on the application.

To me this brings up several questions (problems?). (1) If the individual is a co-borrower he is a co-applicant and must express his "intent to apply jointly." Right? (2) Do we report the income the credit decision was based upon, or do we report NA because one of the borrowers happens to be non-human? (3) do we collect GMI from the business individual or not? (4) is this practice of requiring a principal of the business to be a co-borrower (not a guarantor)even legal? I have to wonder if we are at odds with Reg. B, 202.7(d)in requiring the signature of another person.

I would happily run the GMI and income question thru the HMDA Helpline but I'm uncomfortable sharing our practice of requiring the individual to be a co-borrower. What do you think?

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Lending Compliance
#149577 - 01/13/04 10:21 PM Re: Required signatures & business lending
HRH Dawnie Offline
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HRH Dawnie
Joined: Aug 2002
Posts: 7,353
Anchorage Alaska
I'm not going to address the legality of requiring the individual to be a coborrower since that reg isn't my specialty. I'm sure someone will chime in on that.

When we see a business and an individual as coborrowers we would require the business (non natural entity) to report income as NA. You never use the revenues of a business as income in regards to HMDA.

For the coborrower we report as appropriate to the coborrower (race, etc.) Income isn't an issue as the primary borrower is a non natural person. If the coborrowers are a married couple or there are more than one coborrower we report the information on the first listed coborrower.

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