Source: http://mortgage-faqs.blogspot.com/2015/08/
Timestamp: 2017-11-23 14:55:31
Document Index: 125483279

Matched Legal Cases: ['art 226', '§ 226', 'art 226', '§ 226', 'art 226', '§ 226', 'art 226', '§ 226', 'art 226', '§ 226', 'art 226', '§ 226', '§ 1691', '§ 202', '§ 202', '§ 202', '§ 202', '§ 202']

Mortgage Compliance FAQs: August 2015
at Thursday, August 27, 2015 Links to this post
It is our understanding that TILA exempts extensions of credit primarily for a business, commercial or agricultural purpose. What is a business or commercial purpose loan? Are there any factors that we can use to determine if the loan is for a business or commercial purpose?
Regulation Z does not expressly define what an extension of credit for a business or commercial purpose is, though applicable Commentary does offer some guidance with respect to what is credit for a business or commercial purpose that is exempt from TILA and what is consumer credit that is subject to TILA.
In order to be exempt from TILA, the primary purpose of a credit transaction must be for a business or commercial purpose. Generally, there are determinative factors. As it pertains to residential mortgage lenders, these factors bifurcate into two types of credit extensions and special rules, one applying to non-owner occupied rental property and the other applying to owner-occupied rental property.
Certain factors must be considered in determining whether a credit transaction is for a business purpose or a consumer purpose. These are:
The relationship of the borrower’s primary occupation to the acquisition. That is, the more closely related, the more likely it is to be business purpose.
The borrower’s statement of purpose for the loan. [12 CFR Supp. I to Part 226, Official Staff Commentary § 226.3(a)-3.i]
Examples of business purpose credit are:
Loans to expand a business, even if it is secured by the borrower’s residence or personal property.
A loan to improve a principal residence by building into it a business office.
A business account used occasionally for consumer purposes. [12 CFR Supp. I to Part 226, Official Staff Commentary § 226.3(a)-3.i]
Examples of consumer purpose credit are:
Credit extensions by a company to employees or agents if the loans are used for personal purposes.
A personal account used occasionally for business purposes. [12 CFR Supp. I to Part 226, Official Staff Commentary § 226.3(a)-3.ii]
Consider also the special rules. Credit extended to acquire, improve, or maintain rental property that is not owner-occupied is deemed to be for a business purpose. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner occupied and the special rule would not apply. [12 CFR Supp. I to Part 226, Official Staff Commentary § 226.3(a)-4]
Furthermore, credit extended to acquire owner-occupied rental property is deemed to be for a business purpose if it contains more than two housing units; and credit extended to improve or maintain owner-occupied rental property is deemed to be for a business purpose if it contains more than four housing units. [12 CFR Supp. I to Part 226, Official Staff Commentary § 226.3(a)-5]
Finally, a credit transaction involving real property that includes a dwelling, such as a farm with a homestead, is exempt from TILA if the transaction is primarily for agricultural purposes. [12 CFR Supp. I to Part 226, Official Staff Commentary § 226.3(a)-8]
Labels: Consumer Purpose, TILA, Truth in Lending Act
Spousal Signatures under Equal Credit Opportunity Act
When is a mortgage lender permitted to require a non-borrowing spouse to sign loan documents?
The Equal Credit Opportunity Act (“ECOA”) and its implementing regulation, Regulation B, prohibits creditors from discriminating against applicants on a number of prohibited bases including marital status. [15 USC § 1691 et seq., 12 CFR § 202]
Under Regulation B, unless a spouse is a joint applicant, a lender may not require the signature of an applicant’s spouse on any loan document, except any loan document that is reasonably believed to be necessary under applicable state law, if the applicant qualifies for the amount and terms of the credit requested under the mortgage lender’s credit standards. This is the case even if the subject property securing the credit is jointly owned by the applicant’s spouse. [12 CFR § 202.7(d)(1)]
If the applicant does not qualify under the lender’s credit standards, which may not include a requirement for a spousal guarantee, then the lender may condition approval on the addition of a guarantor or cosigner. However, a lender is not permitted to require that this individual be the applicant’s spouse. [“Common Violations and Hot Topics,” Outlook Live Webinar, July 29, 2015, FRB]
Generally, this rule applies to all open-end and closed-end, secured and unsecured extensions of consumer credit and business credit. However, there are exceptions.
Taking into account state property laws, a lender may be permitted to require the signature of a non-borrowing spouse on loan documents under three circumstances:
1) With regard to secured credit transactions, a lender may require a non-borrowing spouse’s signature on any loan document necessary, or which the lender reasonably believes is necessary, to secure the credit under applicable state law and protect the mortgage lender in the event of default. [12 CFR. § 202.7(d)(4)]
2) With regard to unsecured credit transactions in community property states, a lender may require a non-borrowing spouse’s signature on any loan document necessary, or which the lender reasonably believes is necessary, to make the community property available under applicable state law to satisfy the debt in the event of default if
a. applicable state law denies the applicant power to manage or control sufficient community property to qualify for the amount of credit requested; and
b. the applicant does not have sufficient separate property to qualify for the amount of credit requested without regard to community property. [12 CFR § 202.7(d)(3)]
3) Third, with regard to unsecured credit transactions in non-community property states, a lender may require a non-borrowing spouse’s signature on any loan document necessary, or which the lender reasonably believes is necessary, under applicable state law to enable the lender to reach the property relied upon in the event of the applicant’s death or default. [12 CFR § 202.7(d)(2)]
Spousal Signatures under Equal Credit Opportunity ...