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#179405 - 04/13/04 09:42 PM Intent - Which Box Should You Check?
Terry Offline
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Terry
Joined: Sep 2001
Posts: 314
Midwest
In a CONSUMER loan situation what box should be checked if there is one borrower and one cosigner? Should they be considered to be applying for

(A) "joint credit" - since they are both "applicants" as defined by Reg B in 202.(e), or
(B) "Individual Credit: relying on my income or assets as well as income or assets from other sources" - since one person is really applying for credit based in part on the creditworthiness of the other?

(The definition of "applicant" in Reg B says that for purposes of 202.7(d) regarding signatures of spouses, the term "applicant" includes guarantors, sureties, endorsers, and similar parties.)

Also, in COMMERCIAL lending situations where the borrower is a legal entity such as a corporation or partnership and the bank is obtaining personal guarantees from two people do we consider this:

(A) "joint credit" - because there is more than one person, or
(B) "Individual Credit: relying on my income or assets as well as income or assets from other sources" - because their is only one actual borrower (ie: the business entity)?

What if the COMMERCIAL loan to a corporation or partnership only has one guarantor? Is this "Individual: relying on income of self and other . . ."?

Last but not least: If the loan is to a business entity such as a corporation that is wholly owned by one person, what is the appropriate choice for intent if that one person also guarantees the loan?

Thanks.
Last edited by Terry; 04/13/04 09:48 PM.
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#179406 - 04/14/04 02:49 PM Re: Intent - Which Box Should You Check?
Terry Offline
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Terry
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Midwest
Me again! With all the attention focused on the joint intent issue I was hoping other people had already figured this out. Any answers out there?

I know the main point is to get the statement of intent from everyone that is applying, cosiging, or guaranteeing, but what exactly should they state their intent to be in each of these scenarios? Reg B doesn't actually define the terms joint applicant or individual applicant!
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#179407 - 04/14/04 03:26 PM Re: Intent - Which Box Should You Check?
Beagles22 Offline
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State of confusion
Our new forms for all applications from our vendors simply say 'this addendum supplements and is made a part of the ________ (type) loan application. We intend to apply for joint credit' and is has them both sign and date the form. This is of course a quick fix and may be modified after it is made clear exactly what is expected of us, and is in no way legal advice
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#179408 - 04/14/04 03:38 PM Re: Intent - Which Box Should You Check?
Terry Offline
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Terry
Joined: Sep 2001
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Midwest
But when do you consider an application to be for "joint credit"?

I know the basic scenario when two people walk up and say "we want to applying for a loan".

But what about one borrower and one cosigner - would you expect them to sign that they're applying for joint credit?

Similarly, what about a commerical loan to a corporation guaranteed by three people - would you expect the three guarantors to sign your form for joint credit or would you consider that to be an application for individual credit to the corporation?

Even if a bank used a form that doesn't have the third option everyone still needs to figure out what is supposed to be "joint credit".
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#179409 - 04/14/04 04:09 PM Re: Intent - Which Box Should You Check?
Anonymous
Unregistered

Hi,

I just got out of a meeting today on this very issue. I think we all have the same issues. Does anyone have a quick link to the amendment? I've searched the hot topics forum and I could not find it. Thanks for the help.

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#179410 - 04/14/04 04:13 PM Re: Intent - Which Box Should You Check?
RR Joker Offline
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The Swamp
I agree with your concern, Terry. It is very difficult to know just how to go about those situations. Since the definition of applicant considers all of those "other" folks. I believe our intentions are to have all obligatory parties sign the intent. Maybe the line that says "we are applying for joint credit" should be modified to something like "we are applying for joint credit or co-signing/guaranteeing a loan for the primary borrower"...that might cure the problem of what is "joint" and what isn't.
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#179411 - 04/14/04 05:01 PM Re: Intent - Which Box Should You Check?
Terry Offline
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Terry
Joined: Sep 2001
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Midwest
Joker - I was thinking the same thing. I've already distributed a different version to be used for Commercial lending.

However, I just got clarification! I went to the Source and spoke with one of the attorneys at the Fed Board in Washington. The answer I received was based primarily on the second half of the Commentary to 202.7(d)(1) which says:

Paragraph 7(d)(1)
1. Joint Applicant. The term joint applicant refers to someone who applies contemporaneously with the applicant for shared or joint credit. It does not refer to someone whose signature is required by the creditor as a condition for granting the credit requested.

Based on the second sentence, the attorney told me:

1. An application for consumer credit by a person with a cosigner would be considered INDIVIDUAL credit.

2. A loan to a legal entity such as a corporation would be considered INDIVIDUAL credit regardless of how many people are providing personal guarantees.

The attorney told me that while the definition of "applicant" in 202.2(e) says that for purposes of 202.7(d) includes guarantors, etc., this is merely to state that those parties are protected by Reg B as "applicants". However, it does not make them "joint applicants" under the new requirement to obtain a statment of intent for joint credit.

I hope this helps everyone.
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#179412 - 04/14/04 07:49 PM Re: Intent - Which Box Should You Check?
RR Joker Offline
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The Swamp
Thanks for taking the time to clarify that...sure will make things easier and clearer.
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#179413 - 04/17/04 07:30 PM Re: Intent - Which Box Should You Check?
Anonymous
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Terry,

Which attorney did you speak with?

Has anyone else gotten similar opinions from the regulators?

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#179414 - 04/17/04 07:42 PM Re: Intent - Which Box Should You Check?
Bear Collector, CRCM Offline
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Posts: 1,830
District of Columbia
We also are regulated by the Fed and received a similar response from our examiners. When someone applies for credit individually, and we tell them they need a co-signor to strengthen the loan, each applicant is considered as a separate individual entity. We have the co-signer complete a separate applicaton form, and we do not combine incomes or debt. we would most likely see this situation with a kid who just graduated from HS, moved in to an apartment with a buddy, and needs a car. The kid has a good job, no debt, but no credit history either. Enter Dad, who agrees to co-sign the loan. Dad has good credit and resonable debt. We would look at Dad and Jr separately - not as joint applicants.
BC
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#179415 - 04/17/04 10:59 PM Re: Intent - Which Box Should You Check?
rlcarey Offline
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rlcarey
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Galveston, TX
BC - What you're saying in your scenerio is that you orginally turned down junior - right?? Then Dad entered the picture as a co-signer.

I've seen too many banks jump immediately to this conclusion in father/mother - son/daughter scenerios.
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#179416 - 04/18/04 05:13 PM Re: Intent - Which Box Should You Check?
Bear Collector, CRCM Offline
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District of Columbia
I guess you could say that we originally turned down Jr - although Jr may know his credit is weak and ask at the outset about having a co-signer. We don't specify who the co-signer should be-that's up to Jr., so no, we do not immediatly jump to a parent. The only point I was making was that we consider the co-signer as a separate applicant, not aj oint applicant, regardless of who the co-signer may be.
BC
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#179417 - 04/18/04 07:44 PM Re: Intent - Which Box Should You Check?
rlcarey Offline
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rlcarey
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Galveston, TX
BC - I agree with all you are saying. The situation that I was referring too is when a bank determines that it is a father/mother - daughter/son application and they automatically treat it as a co-signer situation or require the parent to act as a co-signer - even though the applicants may have intended to apply jointly.
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