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#270053 - 11/02/04 09:00 PM Loan Applications - Convincing Mgmt of the Need.
OnTheEdge Offline
Diamond Poster
Joined: Apr 2002
Posts: 1,677
SmallTown, USA
If regulation does not specifically require a written application, what's the best way to convince mgmt that it is a "best practice"? I focus on consumer protection regulations, maybe I just not aware of some requirement on safety and soundness side that would help make this arguement.
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Lending Compliance
#270054 - 11/09/04 06:54 PM Re: Loan Applications - Convincing Mgmt of the Need.
Dorothy W Offline
100 Club
Dorothy W
Joined: Aug 2004
Posts: 164
Upstate SC
A few ideas for thought:
1) Lenders need to ask applicants such questions as how much debt they have, value of assets - esp. bank/broker accounts, and net worth. Also they need to have full name, address and phone numbers for follow-up correspondence, along with SSNs for credit reports, names of other bank relationships and employer info. -- all required for underwriting loans. So if the lender has to write this info. down for a processor to use, why not make it easier and quicker for the lender to record this info. and for the processor to locate this info. by using a written application form? Saves everyone time which = saving money.
2) Loan application forms also require the borrower to attest to the accuracy & completeness of the information they supplied to the bank to support of their loan request. If you don't have a signed application, I think it would be pretty difficult to sue under 18 USC 1001.
3) For business loans, Reg. B now requires proof that the application was intended to be a joint app. all along. Seems a written app. signed by both parties makes this so much easier to prove.
4) As a past OCC examiner, the lack of a written application was a reg flag to me for a possible fictious loan - and yes, they are usually by the lender no one in the bank would ever suspect.

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#270055 - 11/09/04 07:23 PM Re: Loan Applications - Convincing Mgmt of the Need.
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,650
Florida
I'll attest to Dorothy's and add just a bit more. An application reflects who applied for credit, the program applied for, who took the application, and all financial details in-between.

For residential real estate loans, the app is required by secondary marketing as an attestation that all is complete. There are 2 applications actually required - initial application - what was requested by the borrower, from whom, & signed by borrower and loan officer. The final application - what was verified and validated during processing. The customer signs that one too.

Above the signature block on a standard application are multiple reps and warranties that the borrower signs (but rarely if ever reads). These include the ability to reverify anything on the application, accuracy of the information, etc. Like Dorothy said, it's a great safeguard.
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