FAQs
Government Monitoring Information
GOVERNMENT MONITORING INFORMATION
Question: We are not a HMDA reporting bank. Should we collect government monitoring information (GMI) on a construction-only loan to build the applicant’s principal dwelling that is secured by the dwelling being constructed?
Answer: No. The commentary to § 1002.13(a) specifically exempts temporary financing to construct a dwelling from the GMI collection requirement. The GMI collection requirements are triggered by an application for credit primarily for the purchase or refinancing of a dwelling, occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by that dwelling (a residential structure containing one to four units, whether or not attached to property). Construction-to-perm loans to build the applicant’s principal dwelling, however, are subject to GMI collection since they will not be replaced by permanent financing, and therefore are not temporary.
Question: If the bank is not a HMDA reporter, should government monitoring information be collected on second mortgage loans?
Answer: The lien status does not determine whether GMI should be collected on a home loan application. Instead, Reg. B 1002.13(a) requires a bank to collect GMI when the application is primarily for the purchase or refinancing of a dwelling, occupied or to be occupied by the applicant as a principal residence and the loan will be secured by that dwelling. Sometimes banks will do a second mortgage to cover closing costs or part of the down payment when purchasing a new principal dwelling and will secure the loan with the dwelling being purchased (often referred to as “piggyback” loans). Those loans are an example of when a second mortgage would require the bank request GMI from the applicant(s). As a resource, there is the Reg. B Collection of Government Monitoring Information Guide on the IBA website that explains the regulatory requirements when banks are not subject to HMDA reporting.
Question: If a bank is not a HMDA reporter, is there any issue if it collects government monitoring information on applications that are not for the purpose of purchase or refinancing the principal residence?
Answer: Reg. B §1002.5(b) specifically prohibits asking about the race, color, religion, national, or origin, or sex of the applicant. The exceptions to this prohibition for GMI collection are found in Reg. B §1002.5(a):
- Section 1002.5(a)(2) states a bank may request the GMI as required by §1002.13. This means GMI must be requested for applications as required by the Reg. B GMI rules described in the previous Q&A.
- Section 1002.5(a)(4) the indicates a bank may request GMI on applications that would be reportable per the Reg. C HMDA rules if either of the following applies: (1) A bank that is exempt from HMDA reporting because it is under the Reg. C reporting thresholds, can collect information regarding the ethnicity, race, and sex of the applicant for HMDA reportable applications if it submits HMDA data even though exempt or if it submitted HMDA data on covered applications in any of the preceding five calendar years; or (2) A bank that exceeded that applicable loan volume reporting threshold in the first year of the two-year threshold period provided in the HMDA reporting requirements may, in the second year, collect information regarding the ethnicity, race, and sex of an applicant for HMDA reportable applications.
Collection of GMI information beyond the requirements of §1002.13 or as allowed in §1002.5(a) is a violation.
Question: We are not a Home Mortgage Disclosure Act (HMDA) reporting bank and are taking an application for a home equity loan secured by the applicant’s principal residence where the purpose is to consolidate debts – other non-RE loans and credit cards. Can you please remind me of the Government Monitoring Information (GMI) or Demographic Information (DI) collection (ethnicity, race, sex, marital status and age) requirements under Reg. B?
Answer: Reg. B states the bank is to collect GMI if the property securing the loan is the borrower’s principal residence and the loan is for the purpose of purchasing or refinancing that dwelling. A non-HMDA reportable bank should not collect GMI for applications other than those that meet both the collateral and purpose requirements. So in your example, it appears that the borrower’s principal residence is your collateral but the purpose is not for the purchase or refinancing of that dwelling, so GMI should not be requested. (August 2019)
JOINT INTENT
Question: Is joint intent required to be evidenced at the time of application when the bank requires a guarantor or personal guaranty for closely held entities in its loan policy?
Answer: No. Joint intent applies when two or more applicants apply contemporaneously (at the same time) for shared credit. This is supported by the official staff commentary to Reg. B:
Official Interpretation Section 1002.7(d)(1),
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- 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.
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If only the business entity applied for credit, but the bank requires principal owner(s), as a matter of bank policy, to guarantee the loan, then joint intent isn’t required as the owner guarantee was required by the bank as a condition for the credit extension and was not a co-applicant. Therefore, the note would be signed by the owner in the capacity of the business owner but would not be signed as obligor. Reg. B allows the bank to have a policy of requiring principals of a business to “guarantee” the loan but does NOT expressly allow the bank to require principals of a business to sign individually or be joint applicants.
Question: The bank approved a request from joint applicants for a “guidance line.” The bank approved a maximum credit limit, and the borrowers can take periodic advances from this guidance line as needed without going through the loan approval process again. Each advance covered by the guidance line is funded as a new loan rather than an advance from a master line of credit. Would we need to obtain joint intent each time they request an advance on the guidance line?
Answer: No. Reg. B refers to a joint applicant as someone who applies contemporaneously with the applicant for shared or joint credit. Joint intent must be documented at the time of application. The application occurred when the borrowers applied for the guidance line; as a result, joint intent should have been documented at the time of receiving the guidance line application.
Question: We have two business entities requesting to borrow funds jointly; their intent is to be co-borrowers. Must we evidence joint intent? If so, who signs the form?
Answer: Good question! To clarify, by two “business entities” you mean two corporations or two partnerships, right? Assuming so, review the commentary to section 1002.7, which covers “joint intent” in the most depth. It provides:
Paragraph 7(d)(1)
- 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 may be used to establish intent to apply for joint credit. (See Appendix B). 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.
Reg. B defines “applicant” and “person” rather broadly to include more than just natural persons:
(e) Applicant means any person who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit. For purposes of § 1002.7(d), the term includes guarantors, sureties, endorsers, and similar parties.
(x) Person means a natural person, corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association.
So, yes, on the rare occasion, two business entities apply contemporaneously for shared credit, you should document joint intent. Whoever makes the application on behalf of the entities should sign the joint intent form, since joint intent is to be evidenced at the time of application. The bank should look to the entities’ corporate resolutions to determine who has authority to make credit applications on behalf of the business entity as well as sign legal agreements and pledge assets as collateral.
Question: Do the joint intent requirements apply to a cosigner who applies at the same time as the primary applicant (e.g., son & father)?
Answer: Yes. For Reg. B purposes, a “joint applicant” is someone who applies contemporaneously with the primary applicant for credit. For example, son is applying for car loan but Dad knows son will not qualify on his own, so Dad goes to the bank and applies with the son for the car loan. Dad is a “joint applicant” for Reg. B purposes and joint intent should be evidenced.
See commentary to 1002.7:
Paragraph 7(d)(1) 2. 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.
Alternatively, son applies for a car loan individually. Bank finds son does not qualify on his own and requires a co-signor. Dad then volunteers to cosign on behalf of son. Joint intent is not required as the cosigner was required by the creditor as a condition of the loan; Dad did not initially apply contemporaneously with the son for credit. For Reg. B purposes, it will be very important for the lender to carefully document in the loan file if Dad applied contemporaneously with the son or was required as a condition of the loan.
As for the notice to cosigner notice required by Reg. AA, Reg. AA defines a cosigner as any natural person who is obligated on the debt but does not benefit from the loan proceeds. So in the scenario outlined above, if Dad’s name is not on the title to the vehicle, he did not receive benefit proceeds and is a cosigner per Reg. AA. For Reg. AA purposes, it does not matter if Dad applied contemporaneously or was required by the creditor as a condition of the credit extension. If he is obligated but does not receive benefit of the loan proceeds, he is a cosigner. Also, it does not matter if the bank calls Dad a “co-borrower” or “co-signer,” he is considered a cosigner for Reg. AA purposes if he does not receive benefit of funds.
227.12(b)(1) Cosigner means a natural person who assumes liability for the obligation of a consumer without receiving goods, services, or money in return for the obligation, or, in the case of an open-end credit obligation, without receiving the contractual right to obtain extensions of credit under the account.
(2) Cosigner includes any person whose signature is requested as a condition to granting credit to a consumer, or as a condition for forbearance on collection of a consumer’s obligation that is in default. The term does not include a spouse whose signature is required on a credit obligation to perfect a security interest pursuant to state law.
(3) A person who meets the definition in this paragraph is a cosigner, whether or not the person is designated as such on the credit obligation.
Question: Does a loan renewal trigger the Reg. B joint intent requirements?
Answer: Yes. A loan renewal is an extension of credit per the definition in Reg. B 1002.2(q):
(q) Extend credit and extension of credit mean the granting of credit in any form (including, but not limited to, credit granted in addition to any existing credit or credit limit; credit granted pursuant to an open-end credit plan; the refinancing or other renewal of credit, including the issuance of a new credit card in place of an expiring credit card or in substitution for an existing credit card; the consolidation of two or more obligations; or the continuance of existing credit without any special effort to collect at or after maturity).
The joint intent requirements apply to “extensions of credit”; however, it is important to understand this definition is not limited to just “new” extensions. Extensions of credit include requests for refinances, loan consolidations, renewals and the continuance of existing credit obligations as they mature. Therefore, when processing a loan renewal for multiple borrowers, the intent for all borrowers to apply for the loan renewal must be evidenced at the time of loan renewal request.