I know Reg B prohibits requiring an owner of a property be on the loan if the loan applicant qualifies by him or herself, but what about the other way around? We have a situation where one spouse financed property in her name only (on the loan and deed). She now wants to refinance, and her husband will be on the loan, but the husband does not want to be added to the deed. The LO thinks requiring that husband be added to the deed as necessary since he is now the only applicant with income.

Thoughts?

You have only two things to do when you make a loan. 1) You determine that whoever signs the note can afford to make the payments. 2) You make sure that you obtain the necessary signatures on the security agreement to give you a valid lien.

Other than that - who owns the collateral is really none of your business. Property ownership is between the owners, their legal counsel, and their financial advisors. If you do not make loans based on collateral that is owned by a third party is one thing. Suggesting that ownership be changed in order to get a loan is a little out of bounds.

You need to talk the bank's legal counsel.

I'm not sure why it would be necessary to force him on the deed simply because he is the only borrower with income.

Some states allow that property even in a community property environment may remain individually owned and separate from joint ownership. I don't know the necessity of having a borrower be listed as an owner, but it could change estate planning. Say the family farm has been owned for generations by the McCoy' and they want to keep it that way. The spouse, Hatfield, was clearly designated as someone who would never own the family farm. Your requirement alters that for no valid reason.

Child graduates high school and readies for college. They buy a car and the lender accepts a co-signer or borrower of mom or dad who is freely offered up. Child has separate income and can afford the payments and expects to. Do you require mom or dad on the title because they will be on the Note?

Absent some state requirement, what is the reason other than, we wanted to because we haven't been here before?

I see fair lending criticisms all over this and lawsuit possibilities of anything happened to the ownership because of a bank imposed requirement.

Wendoline, I can only assume that your loan officer is new, and does not have much of an idea what they are doing! The 3 prior responses are textbook classics from a guess of close to a century of banking. Unless there is state law to the contrary, IMHO, the bank could make the loan, as stated, or turn it down and wait for the regulator to show up.

ECOA
1002.7(d)(4) (4) Secured credit. If an applicant requests secured credit, a creditor may require the signature of the applicant's spouse or other person on any instrument necessary, or reasonably believed by the creditor to be necessary, under applicable state law to make the property being offered as security available to satisfy the debt in the event of default, for example, an instrument to create a valid lien, pass clear title, waive inchoate rights, or assign earnings.

Commentary:
Paragraph 7(d)(4).
1. Creation of enforceable lien. Some state laws require that both spouses join in executing any instrument by which real property is encumbered. If an applicant offers such property as security for credit, a creditor may require the applicant's spouse to sign the instruments necessary to create a valid security interest in the property. The creditor may not require the spouse to sign the note evidencing the credit obligation if signing only the mortgage or other security agreement is sufficient to make the property available to satisfy the debt in the event of default. However, if under state law both spouses must sign the note to create an enforceable lien, the creditor may require the signatures.