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Thursday, April 14, 2016

Proving Intent to apply for Joint Credit

QUESTION
I am an underwriter for conventional mortgage loan products. Our compliance officer tells me that I can’t use a joint financial statement as an application for joint credit under the ECOA. Is this so? Also, what exactly is a joint applicant and, while you’re at it, how am I supposed to prove the intent to apply for joint credit?

ANSWER
With respect to whether a lender may assume the application is for joint credit if an applicant submits joint financial information, such action would be a violation of the Equal Credit Opportunity Act (ECOA). A creditor may not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit. [12 CFR § 202.7(d)(1)] 

A joint applicant is 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. [12 CFR Supplement I, Part 202; Official Staff Interpretations § 202.7(d)(1)-2]

As to proving intent, indeed it is the case that 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. In contrast, signatures or initials on a credit application affirming the applicants’ intent to apply for joint credit may 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 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. [12 CFR Supplement I, Part 202; Official Staff Interpretations § 202.7(d)(1)-3]

It is worth noting that the Uniform Residential Loan Application (URLA) specified by Fannie Mae and Freddie Mac includes a provision for signatures of applicants to ensure evidence of the intent to apply for joint credit.

Jonathan Foxx
President & Managing Director 
Lenders Compliance Group