Clarifying the Joint Intent Requirements at Application

Joint intent exceptions are a common finding in our compliance reviews. We have found that there are misconceptions on what constitutes joint intent and how it should be documented; most of the questions come from commercial versus consumer mortgage loan officers. Many of the questions we are asked include:

1. Isn’t the joint financial statement enough proof for joint intent?
2. Both individuals signed the loan application, isn’t this proof enough?
3. For community property states, both individuals initialed the community state box at the top of the application, doesn’t this indicate joint intent?
4. The application was taken by phone or e-mail; how are you supposed to obtain joint intent in those instances?
5. The loan was denied. How do we obtain joint intent at that time?

In short, a signature on a joint financial statement or a joint application is not enough to state the loan is a joint application. The official commentary to Regulation B states the following:

• Joint applicant. The term “joint applicant” refers to someone who applies contemporaneously with the applicant for shared or joint credit. It does not refer to someone whose signature is required by the creditor as a condition for granting the credit requested.
• Evidence of joint application. A person’s intent to be a joint applicant must be evidenced at the time of application. Signatures on a promissory note may not be used to show intent to apply for joint credit. On the other hand, signatures or initials on a credit application affirming applicants’ intent to apply for joint credit can be used to establish intent to apply for joint credit. The method used to establish intent must be distinct from the means used by individuals to affirm the accuracy of their information. For example, signatures on a joint financial statement affirming the veracity of information are not sufficient to establish intent to apply for joint credit.

When Must Joint Intent Be Demonstrated?

According to the commentary in Regulation B, joint intent must be evidenced at the time of application. Whenever a joint application is received, the lender must ensure both applicants indicate their intentions to apply for joint credit verbally, on the application or on the financial statement. The fact that two individuals ultimately sign the credit instrument cannot be used in and of itself to demonstrate joint application intent for credit.

For example, a husband and wife apply for a loan. The loan officer asks the couple applying for the loan if they are applying for joint credit. When the couple states they are, the loan officer must have them verbally indicate, sign or initial a statement indicating their intent to apply for joint credit.

Another example: A loan officer speaks to a female applicant on the phone who states that she and her husband would like to apply for a loan. The loan officer asks the woman if they are applying for joint credit and she says yes. The loan officer may ask to speak to the husband (co-borrower) to confirm they are applying for joint credit; however, this is not a necessary step. Usually, the loan officer documents at the top of the loan application an indication the applicants intend to apply for joint credit. The loan officer should indicate the date they spoke and that they received a verbal joint intent statement.

A father and son apply for a loan. How do you document joint intent in these instances? The father and son should document joint intent on their individual loan applications, on their PFS or using a separate joint intent form.

How about a loan to a corporation (business) and an individual? Are these transactions covered by Regulation B’s joint intent rule? The answer is “yes.” However, a loan just to a corporation with no individual on the loan would not be applicable to the rule. In the instance with a corporation and an individual, the individual borrower needs to document joint intent via a loan application, a PFS or a separate joint intent form.

Demonstrating joint intent problems generally occur in the commercial lending area. Unlike consumer mortgages, written applications are seldom used in commercial lending. This means the commercial loan officer must determine who is applying for the loan. The fact that a joint personal financial statement is submitted cannot be used to presume both applicants intend to sign the promissory note. A person’s joint intent must be documented at the time of application by having both individuals sign or initial a statement affirming their intent to apply for joint credit.

For instance, a male has an ownership interest in a company; however, his spouse does not. The applicant brings the loan officer a combined personal financial statement which includes information for him and his spouse. The personal financial statement is inadequate acknowledgement that they are applying jointly for a loan. The loan officer should inquire as to who the borrowers are and if the spouse will be a joint borrower and if so, they both must initial or sign a statement of joint intent.

How Should Joint Intent be Documented?

There are many ways to document joint intent. Below are some examples:

Telephone Applications

A common joint intent finding is the application is taken via the telephone so the lender was not able to document joint intent face-to-face. Even if it’s a phone application, joint intent must still be obtained. Ways to demonstrate joint intent for a phone application includes:

1. After asking the applicants if they intend to apply jointly, add a comment usually at the top of the application indicating the applicants intend to apply for joint credit. Make sure to include “per phone conversation” and the lender’s initials.
2. Have the customer sign or initial the joint intent section of the application when they come in to drop off other documents to complete the application process.

In-Person Applications

1. Have the applicants initial or sign the joint intent indication on the application at the time of application.
2. If the customer drops off the application, review it to ensure the joint intent indication is marked if it is intended to be for joint credit.

Commercial or Business Applications

1. 1. Have the customer complete a business loan application (if applicable) and have them initial the joint intent on the loan application, or
2. Have a separate joint intent document for those applicants applying for joint credit, or
3. Add the joint intent statement to the Personal Financial Statement (PFS) and make sure the applicants initial it if they intend to apply for joint credit. However; in this example, a new PFS must be obtained with each new request for credit.

Do Denied, Withdrawn, or Incomplete Applications have to follow the Joint Intent Requirements?

Many of the exceptions identified during compliance reviews are associated with adverse actions. Financial institutions should elect to follow one of the above suggestions to ensure joint intent is being appropriately documented, even if the loan is denied.

Procedures for Joint Intent Requirements

There are a few steps financial institutions can take to ensure joint intent is obtained appropriately during the application process:

1. As part of the application process, reinforce the that loan officers must ask the applicants to identify all parties who will be included on a loan as co-borrowers. Require the notice of joint intent be acknowledged when appropriate at the time of application.
2. Review the loan application to ensure joint intent complies with the established procedures for obtaining and documenting joint intent.
3. Train all loan staff on the Regulation B joint intent requirements.

With a defined application process and appropriate training, financial institutions should be able to reduce joint intent exceptions under Regulation B. TCA can help with your training. TCA is a Better Way and we can partner with you to make compliance easier.