l-4 Unit Family Residences: 1003 on Individuals?

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Question:

We have a business entity, buying a non-owner occupied residential 1-4 unit single family residences. Do we need a 1003 on the individuals and are these HMDA reportable?

Answer:

by Randy Carey:

I don't understand? If it is a business entity borrowing, why do you need 1003s on any individual? The purchase loan would be HMDA reportable.

Answer:

by Jim Bedsole:

You do not need a 1003 on the individuals. However, if the individuals are principals in the business entity and will be personally guaranteeing the loan, you may want to collect some type of financial information on them. In addition, if you are going to pull a credit report on the individuals, you will need them to sign an authorization form, because guaranteeing the loan is not, in and of itself, a permissible purpose under FCRA. As Randy said, the loan is HMDA reportable, but you would not collect any GMI on the individuals. The business entity is the borrower and has no GMI. You would also not report income since the borrower is a business entity.

Answer:

by Randy Carey:

Just a comment: As long as the individuals will personally guarantee the loan, then they will be personally liable on the loan and the FCRA does give you the right to pull a credit report on those individuals.

From the FTC: 40 YEARS OF EXPERIENCE WITH THE FAIR CREDIT REPORTING ACT

Commercial transactions. The issue of whether and how the FCRA applies in the context of an application for business credit arises when a creditor that is considering a credit application from a small business wants to procure a credit report on the sole proprietor or other principal in the business.

In staff opinion letters from 2000 and 2001, the Commission staff addressed this question. Staff opined that (1) a report by a CRA is a “consumer report” even if it is used for commercial purposes; and (2) an application for business credit does not give rise to a permissible purpose except for a report on an individual who will be personally liable for the debt. Staff now adopts the interpretations expressed in these staff opinion letters, and deletes or modifies several interpretations in the 1990 Commentary to make them consistent with those views.

Answer:

by Jim Bedsole:

Thanks for the clarification, Randy.