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#176613 - 04/05/04 01:15 PM Reg B Rules on Joint Applications - Clarification
Anonymous
Unregistered

Thought many of you would find this article helpful and insightful.

Intent is key to Reg B rules on joint applications

With only days left before compliance with the Federal Reserve Board's amended Reg B rules becomes mandatory April 15, compliance officers have flooded regulators and listservs, including RRM's, with questions about the proper way to establish that joint applicants intend to apply for joint credit. Regulators say they rely on Reg B's supplementary information (Section 202.7, paragraph 7(d)(1)(3)) for their responses.

Here's what RRM has learned from Fed officials about joint applicants:

· Creditors have the flexibility to use whatever mechanism they deem necessary to establish that an applicant intends to be a joint applicant for credit. However, Reg B does not allow intent to be established with a signature on a promissory note or on a financial statement.

· If the application is signed by the applicant and the joint applicant, nothing more is required. In this case, the two signatures are sufficient evidence of intent. Additional information is only required if the intent is not clear.

However, financial statements used by commercial lenders in lieu of a uniform residential loan application are a different story. If the signature line on the financial statement is simply attesting to the accuracy of the document, it would not be sufficient to show intent. In that case, there would have to be an additional signature line stating that the person in question intends to apply for joint credit.

Other clarification from the Fed:

· Creditors are not out of compliance if they choose not to use the model form (See Appendix B) check box or the signature line, because they are not required to do so. However, using the model form with initialed check boxes may provide a safe harbor.

· Even in community property states, there still must be evidence of intent.

"We want to give banks flexibility," says a Fed source. "If we were more prescriptive, they wouldn't like that either. If challenged in an exam, it's difficult to argue the intent if there are two signatures on the application for credit."

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#176614 - 04/05/04 02:22 PM Re: Reg B Rules on Joint Applications - Clarification
Tom Fridrich Offline
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Tom Fridrich
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Posts: 180
Omaha, NE
Who wrote the article and who is RRM please?
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#176615 - 04/05/04 02:31 PM Re: Reg B Rules on Joint Applications - Clarification
Anonymous
Unregistered

RRM is "Regulatory Risk Monitor", a compliance publication, that can be accessed at www.rrmonitor.com

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#176616 - 04/06/04 04:09 PM Re: Reg B Rules on Joint Applications - Clarification
Andy_Z Offline
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The FDIC (Chicago) has a telephone conference on as I enter this post. (I applaud them for taking this initiative and answering live questions. Great job!)

It was clearly stated in response to my question that one spouse does not automatically have the power of attorney to affirm that another spouse (or other person) has the right to make that joint credit affirmation. Each person has to do this on their own. This differs from what I had heard, but is similar to what some others have been told.

It was also stated that they will want a written affirmation. This conflicts with what we have heard from other sources.

We really need the FRB, who owns Reg. B, to opine on this or we'll have lingering questions for a long time and potentially a difference in enforcement actions.

And the saga continues.
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My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#176617 - 04/06/04 04:34 PM Re: Reg B Rules on Joint Applications - Clarification
Matt1 Offline
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My belief is that until the FRB affirmatively requires a written application, any citation for failing to obtain a signed commitment from both applicants is unsupportable. There are other ways to obtain applicant consent.

That is not to say that we may allow spouses or applicants to commit for each other. We firmly believe that we have procedures in place to ensure that when we have joint applicants, both applicants are applying for credit with us. We are not going to amend our applications to comply with the Fed's model application. Instead, where we receive a written joint application, our loan officers will capture the information on the application. In scenarios where we don't close a loan in person, we will follow up with a phone call to obtain this information.

For credit cards, we decided that we will closely monitor joint applicants to ensure that we have the consent of both applicants. This means in telephone applications both applicants must speak with our representative before we book a joint account. For written applications, both applicants must sign the application. Otherwise, we will follow-up with a phone call

Just thought I would let you know how we are going to handle this.

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#176618 - 04/06/04 07:48 PM Re: Reg B Rules on Joint Applications - Clarification
Andy_Z Offline
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lsmith asked,
Quote:

What is the rule for customers that apply by phone? Since Reg B does not require a written application for most loans, I can see that we can get it initialed at closing, but what if the customer calls in and we adverse it and they never come in the bank? How do we handle that situation?





To which I would reply, I honestly don't know unless you define a "completed joint application" to be one with both (or more as needed) affirmations. And without it being "complete" you don't have to take action other than requesting the affirmation or looking at it as an individual application (also not good). I can see criticism there too, as applications would be delayed, but this seems to be what is being called for.

If you took this "complete application" approach it would meet the spirit and intent of the Reg. I believe it would be defendable from a compliance standpoint, but it stinks of lousy customer service. Short of this, a script that is compliant and utilized in practice whereby you document, "both "X" and "Y" affirmed the application to be joint...", you have few other mechanisms to comply. If the regulators want this in writing and do not consider it part of the application, I'd say they are in new territory.
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AndyZ CRCM
My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#176619 - 04/06/04 08:36 PM Re: Reg B Rules on Joint Applications - Clarification
Matt1 Offline
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I agree with you. Regulation B instills some finality to applications. Because we have to track applications and send denials or make approvals within the specified time frames, the applicants are provided with information within a reasonable time.

If we are in a position to make a determination on an application, we have received a completed application. Certainly, if we were to receive a phone application for a joint account and one applicant clearly did not meet our qualifications -- e.g. filed bankruptcy this year or had a long history of delinquency -- we would not wait till we had followed up with the joint applicant to send the adverse action notice. We would want the applicants to know as soon as practicable that they would not be able to get credit from us.

I am glad that we are raising this point here because it highlights some likely inadvertent problems with the new joint application requirements.

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#176620 - 04/06/04 08:59 PM Re: Reg B Rules on Joint Applications - Clarification
P*Q Offline

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Posts: 8,458
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I haven't read through all the threads but below is info from FDIC and some hints on how to accomplish intent of joint application (received via e-mail from FDIC):
The final outcome is that due to the introductory language on
the top
of the application, signing it would not prove intent as there are
several reasons why an applicant is required to complete the
application none of which clearly prove intent on their face.
Here
are some suggestions you can share:


8) Evidence of Joint Application.

New language has been added to section 202.7(d)(1) to
emphasize that
the submission of a joint financial statement or other evidence
of
jointly held assets may not be deemed by a creditor as an
application
for joint credit. (See page 13150.)

The official staff commentary has been revised to clarify that
the
creditor must document, at the time of application, the
intention of
the applicants to apply for joint credit. The comment provides
guidance on the development of such documentation. The first
four
Model Application Forms in Appendix B to the regulation have
been
revised in accordance with this guidance.

Additional Clarifications:


* Uniform Residential Loan Application (Freddie
Mac/Fannie Mae)
- The current Uniform Residential Loan Application does not
contain
the language required to show the applicants intent to apply for
joint
credit; therefore, a separate request must be made with the
application and documented. For example; the bank may
preprint the
question on page 4 of the application and require the
prospective
applicants to initial it, or may include an attachment with the
application that requests such information. Either way, a
signature on
the application itself does not prove intent for purposes of this
section.

* Telephone Applications - An institution must ask the
prospective applicant of their intention to file jointly while on
the
phone, document it at the time the application is received, and
subsequently have the applicant sign or initial the section of
the
application that acknowledges their desire to apply jointly.

To have further evidence of an applicant's intention, an
institution
may wish to - although it is not required by the regulation -
record
the phone conversation (if your institution chooses to
implement this
policy, please do so in accordance with applicable state law for
recording phone conversations).

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#176621 - 04/06/04 09:31 PM Re: Reg B Rules on Joint Applications - Clarification
GreatBlue Offline
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GreatBlue
Joined: Feb 2003
Posts: 2,362
Colorado
Pam,
Looks like you got the same response KrisH got earlier. At least the FDIC is being consistent, even if they are taking a completely different stance than the FRB.
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#176622 - 04/07/04 05:33 PM Re: Reg B Rules on Joint Applications - Clarification
Anonymous
Unregistered

I will not be using the model forms as applicants frequently overlook the instructions at the top of an application form. I am adding the following language to the signature area of our application forms and personal financial statement certification form.

My signature below is evidence of my intent to apply for a loan.



I sent both of my forms to a lead examiner at the FDIC on Monday. I'm waiting to hear back. But he said it sounded like my approach would be acceptable.

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#176623 - 04/07/04 07:28 PM Re: Reg B Rules on Joint Applications - Clarification
Rie A Offline
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Rie A
Joined: Mar 2004
Posts: 829
Maryland
Quote:

I will not be using the model forms as applicants frequently overlook the instructions at the top of an application form. I am adding the following language to the signature area of our application forms and personal financial statement certification form.

My signature below is evidence of my intent to apply for a loan.



I sent both of my forms to a lead examiner at the FDIC on Monday. I'm waiting to hear back. But he said it sounded like my approach would be acceptable.




We are also considering adding something like that to the bottom of our applications, for the exact same reasons, and are also an FDIC regulated bank. Please let us know what, if any, response you get from them.
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#176624 - 04/07/04 08:54 PM Re: Reg B Rules on Joint Applications - Clarification
Tom Fridrich Offline
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Posts: 180
Omaha, NE
The Fannie Mae application (Form 1003) has the following statment in Section IX Acknowledgement and Agreement it states, "The undersigned specifially acknowledges and agrees that: (3) all statementes made in this application are made for the purpose of obtaining the loan indicated herein..." Isn't that a statement that indicates they are applying for credit? If it is signed by both applicants then I think you have enough. Anyone else?
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#176625 - 04/07/04 08:55 PM Re: Reg B Rules on Joint Applications - Clarification
P*Q Offline

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I wish Anon regulator would read this and other like threads so they realize what headaches this issue is causing everyone!

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#176626 - 04/07/04 09:13 PM Re: Reg B Rules on Joint Applications - Clarification
Dan Persfull Offline
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Joined: Aug 2002
Posts: 47,803
Bloomington, IN
Tom, I think you are looking at the old 1003. That statement does not appear on the 1003 with the 1/04 revision date. However, #2 on the revised form does state:

the loan requested pursuant to this application (the loan) will be secured by a mortgage or deed of trust on the property described herein;
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#176627 - 04/07/04 09:28 PM Re: Reg B Rules on Joint Applications - Clarification
Tom Fridrich Offline
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Tom Fridrich
Joined: Apr 2003
Posts: 180
Omaha, NE
You were right I had the old one. #4 is pretty close to the old one "all statements made in this application are made for the purpose of obtaining a residential mortgage loan..."
_________________________
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#176628 - 04/07/04 09:51 PM Re: Reg B Rules on Joint Applications - Clarification
Dolly Nugent Offline
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Dolly Nugent
Joined: Nov 2000
Posts: 1,820
Southern California
I was the anon that posted about using "My signature below is evidence of my intent to apply for a loan" above the signature lines on applications forms. Apparently, this approach will not work. This is a response from a lead examiner at the FDIC:

"I reviewed your attached forms and your proposed wording above the signature line. Both the FDIC and the FED share the opinion that two signatures at the bottom of a uniform residential loan application, or any other application that has not been modified to specifically document an intention to be joint applicants, will not be considered documentation of an intention to be joint applicants. At this point you have several options, you can use your current application and have both applicants initial the joint applicant with spouse box at the top of the application to show intent, or you can use a separate form and have both applicants sign it for each application you treat as a joint application. Having a separate form for joint applicants to show intent should address your concern of intent being overlooked by applicants."

At this point I don't know what I am going to do. I don't like the idea of a separate form. So I'm leaning towards making my forms like the model forms. But I still am concerned that applicants will overlook the intial section. I think I will add something like "Please initial at the top of this form if you are applying for joint credit."
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#176629 - 04/07/04 09:51 PM Re: Reg B Rules on Joint Applications - Clarification
SouthernComfort Offline
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Joined: Aug 2001
Posts: 705
Southern Illinois, USA
On that FDIC telecast, I understood them to say that if both parties sign a financial statement then both parties have to sign the application. That doesn't make sense if they are not applying for joint credit. I'm confused. I need clarification.

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#176630 - 04/07/04 10:41 PM Re: Reg B Rules on Joint Applications - Clarification
David Dickinson Offline
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David Dickinson
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Posts: 18,765
Central City, NE
Quote:

Both the FDIC and the FED share the opinion that two signatures at the bottom of a uniform residential loan application, or any other application that has not been modified to specifically document an intention to be joint applicants, will not be considered documentation of an intention to be joint applicants.



Not true! The Fed has said that if the application is signed, they are applying.

Let me try to break this down. Yes, the attestation statement above the applicant's signature doesn't say "I'm applying", but the form they are signing says "Application for Credit" or something similar. Also, parts of the form are labeled "Applicant" and "Co-Applicant" or "Borrower" and "Co-Borrower". Is it not clear that if you complete and application you are applying?

Additionally, the FRB is not requiring written applications. That requirement is in §202.4(c) and it was NOT changed. So why is the FDIC requiring written applications? If I receive all the info I need over the telephone, can I dare say I haven't received an application for credit until I get the info in writing or until the applicants sign an "Evidence of Intent" form? §202.2(f) clearly defines an application as "when I have enough info to make a decision" (my paraphrase). If I say it's not an application yet, I'm going to be in trouble with many other sections of Reg B as well as TIL, RESPA, etc.

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#176631 - 04/08/04 02:31 PM Re: Reg B Rules on Joint Applications - Clarification
Jay Bruce Offline
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Jay Bruce
Joined: Apr 2002
Posts: 546
The New Loft Chamber
I agree with David. The Fed and FDIC have divergent views on this as David has stated. Yesterday, I spoke with an individual with the OCC in Washington, D.C, and I asked him specifically about the URLA. The OCC approach to this area of compliance appears to be in line with the Fed -- i.e., the signed URLA will be sufficient to show intent to apply for joint credit.

On Tuesday April 6, I attended the FDIC's Conference on Compliance and the USA Patriot Act presented in OKC. These questions were specifically asked and answered by the FDIC presenter. Again, with respect to URLA the FDIC will require a separate statement of intent to apply for joint credit.

Also, at this conference the FDIC presenter was asked about online loan applications. In such cases the institution will be expected to have the applicants reaffirm their intent to apply for joint credit in writing. It is my understanding that the Fed and OCC will not require this (if the online application has some method for indicating that it is a joint application).
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#176632 - 04/08/04 03:39 PM Re: Reg B Rules on Joint Applications - Clarification
Sinatra Fan Offline
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New Jersey
Our regulators are truly amazing. They can issue an amendment to Regulation Z that "where the word 'amount' is used in the regulations to describe disclosure requirements, it refers to a numerical amount" [ click here]. But they can't decide whether or not two signatures on an application for credit indicates intent to apply jointly for credit.

I guess it really does depend on what the definition of "is" is.
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#176633 - 04/08/04 04:01 PM Re: Reg B Rules on Joint Applications - Clarification
Dabba Offline
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Dabba
Joined: Sep 2003
Posts: 62
TN
I attended a similar FDIC seminar last week and we heard the same thing...they will be looking for more than signatures on the loan application to prove intent~!!!

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#176634 - 04/08/04 04:14 PM Re: Reg B Rules on Joint Applications - Clarification
rlcarey Offline
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Posts: 85,015
Galveston, TX
Let them look all they want. There will be examiners that are going to blow this out of proportion in the field and there is going to more than one bank that is going to take this straight to the top of the examination chain.
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#176635 - 04/08/04 04:32 PM Re: Reg B Rules on Joint Applications - Clarification
Beagles22 Offline
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Posts: 3,626
State of confusion
I agree with that. The only way we are going to get a firm decision on what is required is when a bank gets called on in during an exam and fights it. Then they will have to clarify EXACTLY what they want from us. Until then, we just get to guess what our best defense is and go with it!
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#176636 - 04/08/04 04:33 PM Re: Reg B Rules on Joint Applications - Clarification
Jay Bruce Offline
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Jay Bruce
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Posts: 546
The New Loft Chamber
Remember, too, that last year the FDIC instituted a new compliance examination methodology that is supposed to focus more on the institution's compliance management system rather than on file review. Theoretically, then, if an institution has not had a past problem with spousal signatures and has a good compliance management system in place (including policies and procedures regarding obtaining evidence of intent to apply for joint credit), then there may be little or no file review for this specific compliance issue.
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#176637 - 04/08/04 04:43 PM Re: Reg B Rules on Joint Applications - Clarification
Dolly Nugent Offline
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Dolly Nugent
Joined: Nov 2000
Posts: 1,820
Southern California
Above the sig line we should put:

I REALLY, REALLY, REALLY, REALLY, REALLY want to apply for joint credit.

How's that! This is so stupid!
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