I have a quandary! We have a joint application where the LE was issued, rate was locked and half way through the process it was found out the husband has a debt that was not disclosed on the credit report and now does not qualify. However the wife does qualify on her own. How does that work if we deny the joint application, but keep the rate lock (or can we keep the rate lock?). How would we disclose the new LE for the wife only with a rate already locked from the denied joint application?

I would treat this as a counteroffer situation. Once you've provided the counteroffer and assuming it's accepted, you could re-disclose the LE if it's necessary. By counteroffering, there shouldn't be any issue keeping the same lock.

But you do not have to reissue the LE in just the wife's name.
The file will tell the story once you put in a copy of the denial to the husband.
Then you just keep going in the wife's name only.

Okay that makes sense. I thought that since it was a joint application we had to deny the joint and restart an individual application.