OAR 274-020-0348: Grounds for Refusing to Make a Loan

The Director may refuse to make a loan to an applicant based on any of the following reasons: (1) Prior loan experience with an applicant was unsatisfactory, including, but not limited to, late payment or nonpayment on loan and impairment of security. (2) The applicant did not disclose all debts or obligations as required under the terms of the loan credit application. (3) The applicant has a negative cash flow. (4) The applicant has declared bankruptcy within the last three years unless: (a) The applicant or the applicant’s spouse has been regularly employed, other than self-employed, since the discharge; (b) The applicant has established credit since the bankruptcy and made timely and satisfactory payments on obligations; and (c) The bankruptcy was caused by circumstances beyond the applicant’s control, such as uninsured medical expense, layoff, strike, or divorce. (5) The applicant has declared bankruptcy between three and five years prior to application for a loan, unless the applicant has reestablished credit since the bankruptcy. (6) Business bankruptcies will not be grounds for refusing to make a loan if: (a) The applicant was self-employed and the bankruptcy was not due to misconduct; and (b) There is no evidence of derogatory credit information prior to the self-employment or after the bankruptcy; and (c) The applicant has subsequently obtained a permanent position with reliable income. (7) Chapter 13 bankruptcies will not be grounds for refusing to make a loan if: The applicant has made satisfactory payment of at least three-fourths of the total payments due the trustee. (8) The applicant’s ability to repay the loan is insufficient, as determined by the Department of Veterans’ Affairs (Department) by applying relevant industry standards. (9) The applicant is an unsatisfactory credit risk, as determined by the underwriting analysis of the credit rating agency selected by the Director. In that case, the Director shall advise the applicant of his refusal on this basis and supply to the applicant the name and address of any consumer reporting agency which provided the Director with information on the applicant. If the applicant requests in writing within 60 days after being notified of the refusal, the Director shall provide the applicant with the name of any person other than a consumer reporting agency who provided information which was, wholly or in part, a basis of such refusal. (10) The applicant is involved in the following type of transactions: (a) The purchase of property from a spouse where the amount which the applicant seeks to borrow from the Department exceeds the unpaid balance on loans used to acquire or improve the property; (b) The purchase from a corporation wholly or substantially owned by the applicant; (c) The purchase of property indirectly owned by the applicant. (11) The applicant has or has had any interest, within the past three years, either title or contractual, in the property being purchased, except it will not be grounds for refusing to make a loan: (a) If the applicant is purchasing a one-half interest from a divorced spouse. The sum shall be stated in the divorce decree; (b) If the applicant acquired an interest in property by inheritance and is purchasing the interest which co-heirs have in the same property; (c) If the application is for an additional loan; (d) If the application is for a rehabilitation loan or a loan to pay off a bridge loan. A “bridge loan” is temporary financing obtained for the purpose of financing the purchase of a home pending the sale of a home owned by the borrower and listed with a real estate broker or advertised for sale; (e) If the application is for a loan to pay off an interim loan whose term does not exceed 24 months (not renewable); (f) If the application is for a loan to pay off a construction period loan obtained not more than 24 months, and the construction was completed not more than 18 months before the veteran applied for a loan; (g) If the application is for amount spent on the purchase of, or the value of, land only (whichever is less) and construction commences within 24 months of land acquisition and the loan is funded within 18 months of the start of construction. (12) The applicant does not meet the applicable underwriting or industry property standards as determined by the Department. (13) Effective with applications received after May 15, 1984, except for farm loans and loans for multi-family dwellings, if the applicant will use the property offered as security for the loan for a purpose that would jeopardize the tax-exempt status of interest to holders of Bonds issued by the Director of Veterans’ Affairs: (a) Specifically excluded uses are: (A) As an investment; (B) As a recreational home; (C) As a principal place of business for any trade or business of the applicant. (b) Examples of excluded uses (if a portion of the property is used regularly and exclusively in connection with a trade or business) are: (A) Using any portion of the residence as a place to meet patients, clients, or customers in the normal course of business; (B) Storage of inventory in a separate and identifiable fixed location and kept for the wholesale or retail selling of products as a part of the applicant’s trade or business which would entitle the applicant to a “Business Use of the Home” income tax deduction; (C) Providing care for children, for the elderly, or for handicapped persons, if the nature and character of the care entitles the property owner to a “Business Use of the Home” income tax deduction. (c) Any use of a residence which does not qualify for a “Business Use of the Home” income tax deduction shall not be considered as a use in a trade or business. Examples of such permitted uses are: (A) Storage of inventory for the benefit of an employer or in conduct of a direct selling business, if the use is not exclusive of any personal use of that part of the residence; (B) Babysitting, if the nature and character of the babysitting does not entitle the property owner to a “Business Use of the Home” income tax deduction; (C) Engaging in person-to-person sales of consumer products to customers in the home, such as Tupperware, Amway, Avon, wicker, crystal, or similar products; (D) Foster home established by Court Order, or designated by a Government Agency with jurisdiction to make such a designation; (E) Using part of the residence to write legal briefs, prepare tax returns, read financial periodicals and reports, clip bond coupons, or engage in similar work, if the use is not exclusive of any personal use of that part of the residence.