Question
When
is a mortgage lender permitted to require a non-borrowing spouse to sign loan
documents?
Answer
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)]
Michael
Barone
Executive Director
Executive Director
Director/Legal
& Regulatory Compliance
Lenders Compliance Group
