CLD - Module 1 Beginning the Process

Question 1

Important in Financing Statement

Answer 1

A financing statement must describe the collateral as mandated in the UCC.

Question 2

Lender Liability

Answer 2

• Lenders have been held accountable for negligence in processing a loan application by ignoring information in the borrower’s favor.
• Lenders should never insist on including in the loan documents additional terms and conditions not outlined in the commitment letter
• Lenders have sometimes been held responsible for granting loans that they knew were beyond the borrower’s ability to repay.
• Lenders should avoid withholding business information that would discourage borrowers from seeking loans,

Question 3

Commitment Letters important components:

Answer 3

• should detail the terms of the deal
• identify the parties involved as well as the type or types of credit facilities being offered
• describe the purpose
• the interest rate and other compensation to the lender
• the maturity and the repayment terms
• Any collateral for the loan should be identified in the commitment letter with specificity. You’ll also need to describe lien priority requirements, state special collateral administration matters, and identify any requirements for guaranties or other assurances of payment from third parties.
• must specify all conditions to closing, including any documentation requirements and whether or not there are any related transactions that must be consummated before closing.
• Other provisions governing the commitment letter and loan negotiation process should also be specified in the letter. These include the fees involved in the transaction, the effective period of commitment, the authority to conduct investigation, the brokerage fees, and the non-assignability of the commitment.

Question 4

The Equal Credit Opportunity Act, or ECOA

Answer 4

• an anti-discrimination law implemented by the Federal Reserve Board through Regulation B
• prohibits discrimination based on race, color, religion, sex, marital status, national origin, age (if an adult), receipt of income from a public assistance program, or the good faith exercise of any rights granted under the Consumer Credit Protection Act.
• In non-community-property states, Regulation B prohibits requests for a guaranty from a spouse, except where a potential borrower relies in part on property that he or she owns jointly with his or her spouse to satisfy the bank’s standards of creditworthiness.the bank can request more creditworthy co-guarantors but still may not require spouses as co-guarantors. However, if a spouse volunteers as a co-guarantor, the bank can accept that guaranty as it chooses.
• In a community property state, if applicable state law denies a potential borrower the power to manage enough community property to qualify for the amount of credit he or she has requested, and if the borrower doesn’t have enough separate property to meet the bank’s standards of creditworthiness, then the personal liability of another party is necessary, and the bank can ask the applicant to obtain a cosigner or guarantor.