We have a loan which has a natural person as the primary borrower and a LLC company as co-borrower. Do we report demographic as NA for both parties or report for individual as given and NA for the LLC company?

Demographic…

7. You must report that the requirement to report the applicant's or co-applicant's ethnicity, race, and sex is not applicable when the applicant or co-applicant is not a natural person (for example, a corporation, partnership, or trust). For example, for a transaction involving a trust, you must report that the requirement to report the applicant's ethnicity, race, and sex is not applicable if the trust is the applicant. On the other hand, if the applicant is a natural person, and is the beneficiary of a trust, you must report the applicant's ethnicity, race, and sex.

Your thoughts please.

Gather and report the DI for the primary borrower. Report NA for the co-borrower for all DI fields.

I'm not so sure raitchjay: I was going to agree with you off of the top of my head, but when I started reading this more carefully, I think the "OR" tells us not to report if EITHER applicant is not a natural person.

Ethnicity, Race & Sex:
Report …the applicant’s or co-applicant’s ethnicity, race, and sex is not applicable when the applicant or co-applicant is not a natural person (for example, a corporation, partnership, or trust). [Appendix B to §1003 #7]
Age:
Do not report age …if the applicant or co-applicant is not a natural person (for example, a corporation, partnership, or trust). [Commentary to §1003.4(a)(10)(ii) #4]

A similar logic is found in the instructions for reporting income:
Report …not applicable when the applicant or co-applicant is not a natural person (e.g., a corporation, partnership, or trust). [Commentary to §1003.4(a)(10)(iii) #7]

[quote=MSB05MS

7. You must report that the requirement to report the applicant's or co-applicant's ethnicity, race, and sex is not applicable when the applicant or co-applicant is not a natural person (for example, a corporation, partnership, or trust).
[/quote]

I think the double "or" in the reg means that NA is reported on an applicant by applicant basis, and not NA for both if any of the applicants are non-natural persons. If they intended for both applicant and co-applicant to show NA for an application that has both natural and non-natural applicants, I believe they would have used "and" in place of the first "or."

I am not as well versed as most of you, but in the first part of the statement, where you have an OR, (the requirement to report the applicant or co-applicant's) you should be able to remove either the first "applicant" or "co-applicant" from the statement and have the remaining part of the statement be true. So, if you revise the statement to read:

"You must report that the requirement to report the applicant's ethnicity, race, and sex is not applicable when the applicant or co-applicant is not a natural person.

By the same token, since you have an "or", when you replace the first "applicant" with "co-applicant" it still reads that the requirement to report ethnicity etc, is NA when an applicant or co-applicant is not a natural person.

Just my two cents.

We do report the individuals DI in these situations. We had a very similar debate on the use of double "or" statements. I was on TMatt87's side on the argument, but I don't think we had a clear winner on linguistic debate. Generally, the DI feilds are borrower specific, and we couldn't think of a good reason they wouldn't want the information.

It would be helpful if they gave an example for this type of scenario instead of just either a natural person, or a non-natural person applying separately. Then we would be debating the use of "or" two years after the final rule.

I agree it would be helpful. I've been in the camp that you report the individual's DI even when there is an entity as a co-applicant. However, I second guessed this (and still am) when I went to answer the OP's question.

We know that income is report as NA if EITHER of the applicant's in a non-natural person. The DI instructions seem to be worded the same.

To me, the difference is....there's only one place to report income. There isn't a place to report "applicant income" and "co-applicant income".......so i read the instructions (which i agree are worded similarly) for DI and income in a different light. But i agree it could be a lot clearer.

Thank you for all the input. We interpreted the report income as NA, since it says "OR" says if either is not a natural person. We also sent with NA on the DI for individual and the business entity.

Demographic…

7. You must report that the requirement to report the applicant's or co-applicant's ethnicity, race, and sex is not applicable when the applicant or co-applicant is not a natural person (for example, a corporation, partnership, or trust). For example, for a transaction involving a trust, you must report that the requirement to report the applicant's ethnicity, race, and sex is not applicable if the trust is the applicant. On the other hand, if the applicant is a natural person, and is the beneficiary of a trust, you must report the applicant's ethnicity, race, and sex.

I agree that their wording isn't great, but i truly don't think that the intent was that if you have multiple applicants (in theory, you could have 17 natural persons and 1 LLC as your applicants), that ONE non-natural person nullifies the requirement to report for all other applicants). I just think those instructions quoted above are to be read as one instruction that applies to 2 fields (the applicant and the co-applicant). IOW, i think if they were clear in what i believe their intention is, they would say:

7. You must report that the requirement to report the applicant's ethnicity, race, and sex is not applicable when the applicant is not a natural person.....

8. You must report that the requirement to report the co-applicant's ethnicity, race, and sex is not applicable when the co-applicant is not a natural person...


I think they simply chose not to duplicate those and threw all of the applicable information into one poorly constructed sentence left open to interpretation and by doing so, created unnecessary confusion. Just my opinion, and how i handle it (and will continue to unless they clarify).

I also think there's a clue to this in the example. Notice that the example doesn't say "For example, for a transaction involving a trust, you must report that the requirement to report the applicant's OR CO-APPLICANT'S ethnicity, race, and sex is not applicable if the trust is the applicant." (And the preceding sentence they DID routinely include "or co-applicant's" which is the entire basis of this argument that if either one of them is a non-natural person, you shouldn't report DI on EITHER. So why would they suddenly leave out "or co-applicant" if that's what they meant?)

As i stated above, we all know it could be more clearly and better written, but i simply don't think that's what they mean (to not report a natural person's DI because they're applying along with a non-natural person).

"On the other hand, if the applicant is a natural person, and is the beneficiary of a trust, you must report the applicant's ethnicity, race, and sex."

Even taking this statement--if the applicant is a natural person, you MUST report the applicant's ethnicity, race, and sex. In this scenario, what if there is another applicant that isn't a natural person? This implies by omission that it simply doesn't matter....if the applicant is a natural person, you MUST report their DI.

I've studied this more and discussed it with our Team. Here's my/our conclusion:

As TMatt said in his first post above, the double "or" in the reg means that NA is reported on an applicant by applicant basis, and not NA for both if any of the applicants are non-natural persons.

Also, income is reported once for all applicants. Demographic Info is per applicant. Thus, if a person and an entity apply, you could have DI for the person and "NA" for the entity. That only makes logical sense to me.

I'm a bit late to this party as I was sitting on the beach last week without a thought of compliance.

FWIW, I agree that if you have one natural person and one entity, you still report the DI for the natural person. Like others have said, the double "or" is different than the income instructions, and income is only reported once where DI is on a per applicant basis. Plus, if they wanted us to list NA for both applicants (when one is an entity), they could have easily included a validation edit for that in the FIG, which they did not.

This is an old thread, however, I would like to ask about another related scenario.

Suppose there are three applicants - two LLCs and one natural person. Who would the DI be reported on? Is the DI information reported by determining the primary applicant and co-applicant? Is DI always reported for the natural person and NA for one of the LLCs or is the DI reported as NA for the two LLCs as applicant and co-applicant?

Any thoughts?

Thank you.