One question we get frequently is, do the joint intent boxes have to be marked? When it comes to evidencing applicants’ intent to apply for joint credit, the boxes are one way of demonstrating that but it’s not the only way. What would you do if you received a phone, internet or mail application and they didn’t mark those boxes? The answer is, the loan officer needs to document, “this is what they said” or “this is what they wanted”. The boxes obviously are a great way to do that, and I would get them marked if you ever see them. If it’s a phone interview; however, you might just write down that Dave called and said he and his wife wished to get a car loan. Such a notation is evidence of joint intent.
The catch to this is that joint intent has to be done at the time of application. So, if they’re not in front of you at the time of application, the only answer is, is that the loan officer does it. That’s the regulatory side of it but there is also a civil liability side to consider. I have been an expert witness in a couple court cases involving joint intent where the banks did not have evidence. In both cases, the judge ruled that the loan was null and void and therefore the bank didn’t have consideration and they look to the collateral. It’s a mess. So, I always recommend that whenever you see the applicants you might want to get the joint intent documentation signed, not to appease the regulation, but rather to have a belt and suspender method, for the civil liability side of it.
This is the kind of thing we’re going to talk about in our upcoming “Regulation B Joint Intent” webinar on February 12th. This one-hour webinar will get into all kinds of scenarios with guarantors, cosigners, comakers, co-borrowers, etc. We’ll cover how to get this documentation, when you need the documentation, and we’ll also look at both the Regulation B and the civil side of joint intent.
Do we have to have a paper loan application in the file?
Do we have to have a paper loan application in the file? What if we take a phone or online application? Does an actual paper loan application have to be signed and dated by the borrower?
First off, Regulation B does not require written applications as a general rule. But obviously, you want to document who said what, because we are talking about fair lending here, so you want to make sure that you can demonstrate that this is what they told you. It’s also a federal crime to falsify information to a loan officer. So, it’s best to have things in writing from the applicant and that you have them sign it. But that’s not a regulatory requirement. Again, Reg B says you don’t have to have written applications.
Now, there’s one exception to that. Reg B does say when it comes to home loans that are for the purchase or refinance of a principal dwelling, you have to have a written application. But that’s not a burden placed on the applicant, but rather on the loan officer. So, at a minimum, when it comes to these home loans (purchase/refinance of the principal dwelling), loan officers should be writing down who said what, regardless of whether it’s a phone or online application, etc.
Prudency says we always want to have written applications from our applicants because we want them to put in writing, in their own handwriting, hopefully, an attestation that this is what they said, not what you assume they said or may have misunderstood.
That’s exactly the kind of thing we’re going to be talking about on February 5th at our upcoming webinar called Applicants and Applications.
That’s the applications portion. Let me talk about applicants a little bit. Who can you make sign? What can you make them sign? That’s the kind of thing we’ll discuss when it comes to applicants. So, for two hours, we’re going to get into the weeds in this complicated area and run through all sorts of scenarios. Join me on February 5th. We’ll see you then.
Let’s talk about HMDA and home improvement loans. When it comes to home improvement, any type of improvement to the real property is what HMDA calls a home improvement loan. If it’s a one to four family dwelling, I don’t care what you’re improving as long as it’s not personal property. Real property such as underground sprinklers, landscaping, maybe a detached garage. The regulation even gives an example of a doctor that is going to add on a wing to their home so that the doctor can practice medicine from home, or maybe me as a bank consultant, I want to do improvements. That may not be a consumer purpose loan for Reg Z, but HMDA says that that is a home improvement loan.
Now, you need to contrast that with any type of five-plus unit building. Imagine you have a mixed-use property on the first floor, there’s a commercial area that is nonresidential, and then we’ve got residential area. First off, we’ve classified this as primarily a dwelling, so we have a dwelling-secured loan. If we’re going to do home improvements, to “what” is the question. If you’re making improvements to the dwelling portion, it’s definitely a home improvement for HMDA. If you’re making improvements to the entire facility, in other words, maybe a new central air, HVAC, water, something like that, then that’s also going to be home improvement because the dwelling portion is being improved, at least in part. But, if you’re making improvements to the non-dwelling portion only, maybe on the first floor of this building you’re putting in new windows. That is not affecting the dwelling portion, so HMDA says that is not a home improvement loan. There are two tests going on here. One we have to say, is this mixed-use property primarily a dwelling or not? If it is, then what are you improving?
These are the kind of things we’re going to get into January 22nd in our HMDA Transaction Coverage webinar. We’re going to get in the weeds talking about what is and what is not HMDA. Mixed-use property, mixed-purpose loans, and we’re going to demystify all this in plain English for you. We’ll see you then.
Congress has once again kicked the can down the road. On December 21, 2018, Congress passed a stand-alone bill, to be presented to President Trump, to reauthorize the National Flood Insurance Program (NFIP) until May 31, 2019. There are no changes to the NFIP in the bill.