Hello, this is one of those things in my many years of lending I've always wondered about, but it's never come up so I haven't dug into it. We are not in a community property state.
Scenario:
Customer applies for consumer-purpose/non-dwelling secured individual credit. On the application she states her income & her spouse's income combined. She does not want her husband to apply - she claims he has poor credit; but needs to use his income to qualify because their debts are all joint (mortgage, autos - etc.). She selects on the application form that she is applying for individual credit but relying on the income from another person as basis for repayment.
Commentary to 1002.7 Paragraph 7(d)(5)[emphasis added]:
2. Reliance on income of another person — individual credit. An applicant who requests individual credit relying on the income of another person (including a spouse in a non-community property state) may be required to provide the signature of the other person to make the income available to pay the debt. In community property states, the signature of a spouse may be required if the applicant relies on the spouse's separate income. If the applicant relies on the spouse's future earnings that as a matter of state law cannot be characterized as community property until earned, the creditor may require the spouse's signature, but need not do so—even if it is the creditor's practice to require the signature when an applicant relies on the future earnings of a person other than a spouse. (See §1002.6(c) on consideration of state property laws.)
"provide the signature" - on what, the note/credit agreement? or some sort of separate guarantee?
Would you:
1. Disregard the husband's portion of the income & counter offer for a qualified co-signer & explain that in order to use the income the other person must be either a co-signer or co-applicant? We underwrite & qualify co-signers, co-applicants and co-borrowers all in the same manner.
2. Allow the application as submitted, considering his income but not his credit (do other banks really do this?).
3. Another option I haven't considered? I'm just trying to figure out other banks apply that "other" individual credit option.
Our customer is questioning their banker on why this is even an option on the form if we are going to require him to sign anyway and I'm at a loss to come up with a reasonable explanation or a real-life example on when this option would be honored in the manner originally applied.
Any thoughts on this would be appreciated. I've spent way, way too much time on this and may be over-thinking it!
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CRCM.
My posts reflect my personal opinions and not those of my employer's.