Use of Loan Guaranties Instead of Co-Signers
06.25.2015 - 11.25.2015 (lending)
Jun. 25, 2015 11:00 a.m. - Noon CT
Loan Guaranties Instead of Co-Signers: When is it better to backstop a borrower instead of co-signing with the borrower? Some credit unions are reluctant to see non-spousal co-signers on open-ended loans instead of closed-end products, because it means the co-signer remains liable long after the initial (maximum) disbursement has occurred. Instead, they try to steer the borrowers into closed-end products. Even if the loans have the same Annual Percentage Rates, it looks like unequal credit opportunities based on marital status, to zealous CFPB examiners.
The answer is not to seek a co-signer, nor is it to discourage open-ended borrowing, it’s to get a guaranty agreement signed. That agreement can be delimited in scope, term, extent, remedies or any other ways the parties can agree. In fact, at least one state requires such limits, to make any guaranty valid and enforceable. As a credit union attorney with deep insights into this topic, Frank Drake will furnish suggestions, forms, methods and practices that should avert the unwelcome gaze of skeptical regulators.
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