​The Declaration Questions on a Consumer Loan Application, are they Regulatory? Risk Based? Required?

Questions such as:

Is your income likely to adjust in the next 2 years?
Do you have any outstanding judgments?
Have you ever filed bankruptcy?

Thanks

Risk Based

Besides being risk based, the applicant is making representations on the application. In the event that any were falsified, the lender could use them in litigation against the applicant, since they, the lender, used the answers (directly or indirectly) in the decision making process.

How can you misrepresent an answer to a question not asked?

Randy, most of the ones I'm use to are the reps and warranties on the 1003. (The app effective 2019 has a full page of declarations).

Of the three questions listed, two (Do you have any outstanding judgments? Have you ever filed bankruptcy?) could be validated through a credit report.

The other (Is your income likely to adjust in the next 2 years?) would be a yes, or no. If the applicant declares "No" and during a default the bank finds out that the person was aware of a change in employment status, they could charge the borrower with falsifying an application for credit. That could also constitute a SAR filing, as the lender made a decision on imperfect knowledge, facts which were asked but not disclosed.

One bank I was at, we detected a scam with a broker, especially with down payments, and funds for closing (creating bank statements with funds for closing). [The broker used his money for the funds at closing and took out soft 2nds to secure the property, and having the monthly payments come through him so he could monitor to ensure no delinquency.] The customer attested to the accuracy of the application and the declarations, including are the funds for closing were theirs. The FBI used the leverage of the falsified information to have the borrowers testify against the broker.

Oh - I do not disagree with any of your statements and I didn't say that asking these questions were not a good idea for other reasons, but that was not the original questions and my original answer remains the same. You ask the questions from an underwriting and risk basis, but the questions are not based on regulatory or any other requirement.