Equal Credit Opportunity Home Mortgage Disclosure Act Pipeline Management

Transcription

1 5/12/2015 Equal Credit Opportunity Home Mortgage Disclosure Act Pipeline Management Regulatory Requirements Equal Credit Opportunity Act (REG B) a request for credit made in accordance with procedures established by the creditor. Fair Credit Reporting Act (FCRA) does not define application, but requires certain notices based on actions taken on an application. TILA RESPA Integrated Mortgage Disclosure Rule TRID six data points. TRID Six Data Points Currently, RESPA requires that a GFE and initial Truth in Lending ( TIL ) disclosure be delivered to the applicant within 3 business days when the following information is received from the applicant: Name Income Social Security number Address Estimated Value Loan Amount Under TRID rules which go into effect on August 1, 2015, the GFE and initial TIL will be replaced with the Loan Estimate or LE. 1

2 5/12/2015 Good Faith Estimate ( GFE ) or Loan Estimated ( LE ) Once the six pieces of information are entered into Encompass, the System will trigger an application date. Disclosure Desk receives a daily report showing applications requiring disclosures. Enter data carefully to ensure that an application is not triggered when the application is still in the prequalification status. Shopping document provide upon request if six pieces of information are provided. TBD for Pre-Approvals Accepted Offer Received 2

3 5/12/2015 When Prospect is Refinancing Leave the Estimated Value blank to work with a refinance loan file prior to application. Unless the Borrower requests a GFE (or LE), you can provide the Application fee worksheet to review fees and closing costs. Refinance Estimated Value ECOA Notification Requirements ECOA establishes notification timeline. Once an application is established, it is essential that it continues to move through pipeline in a timely manner until its natural end. Approval, withdrawal, or denial. The application drives the process, not the applicant s name. 3

4 5/12/2015 Action Taken Originated The loan is approved and closes. Approved, not Accepted The application is approved by Underwriting, but the applicant decides not to accept the offer. Denied The application is turned down. The applicant must receive an adverse action notice within 30 days of the decision. Withdrawn The applicant expressly requests that the lender give the application no further consideration. Withdrawals Withdrawn The applicant expressly withdraws the application from further consideration before a credit decision is made. Document the withdrawal request in the Conversation Log. Begin a new entry. Do not add your comment to an existing entry. Conversation Log 4

5 5/12/2015 Conversation Log Add a short description such as Withdrawal Request. Add detailed explanation. What was the date of the withdrawal (i.e. the day the borrower made the request)? How did the borrower communicate the withdrawal (i.e. phone, , in person)? Upload any relevant information to the efolder, such as s or written requests. Request Withdrawal Tools Tab to view Conversation Log 5

6 5/12/2015 Documenting Withdrawals Include as much detail as possible. This will protect you from successful claims of discrimination. For example: Borrower withdraws with the intention of using a different lender, why is this? Did the other lender offer a better rate? Did the loan officer fail to give proper attention to the borrower causing the borrower to seek help elsewhere? Did the loan officer discourage the borrower in some way? If the file lacks documentation, a regulator will assume the worse. Documenting Withdrawals Don t assume that applicants have withdrawn the application just because you can t reach them. Document every attempt to contact the borrower. Discuss withdrawing the application until a later date if the borrower is not ready to continue. Do not treat a counteroffer as a withdrawal. Loan Denial Loan officers, processors or other employees in the field should never deny nor discourage an application. Discuss all available loan programs with applicants so they can make an informed decision. Loans may be denied by Pipeline or Underwriting. Documentation will help protect loan officers and WMC against successful claims of discrimination. 6

7 5/12/2015 Denials by Pipeline Pipeline will typically deny an application in the early stages when information is being gathered. When submitting a request to Pipeline for a denial, loan officers should provide the following information: Why you believe the file should be denied. Documentation in the efolder and/or Conversation Log supporting the denial request (e.g. AUS findings, appraisals). If AUS findings are not accurate, provide an explanation in the Conversation Log. Denials by Underwriting Underwriting typically denies a loan for credit related issues such as DTI or insufficient cash reserves. Underwriting denies the file once it has been submitted to underwriting. Loan officers should not contact Pipeline for a denial for a loan already in underwriting. Loans in underwriting cannot normally be denied for incomplete file. All denied applications are given an automatic second review within 48 hours of the initial decision to deny. Pipeline prepares and delivers the Statement of Denial based on instructions from the underwriter. Adding or Removing Borrowers Borrowers may be added to or removed from an application before the application is submitted to underwriting. Adding borrowers: Enter borrower information into Encompass. Contact Lock Desk if rate is locked. Contact Disclosure Desk for re-disclosure for changed circumstance. Removing borrowers: Contact Lock Desk if rate is locked. Contact Disclosure Desk for re-disclosure for changed circumstance and to have borrower s name removed. Once application reaches the Submittal milestone, it is considered completed and a credit decision made. Counteroffers may be an option under limited circumstances. 7

8 5/12/2015 Timeline The average time period for an application to turn into an originated loan is less than 3 months. An application cannot remain in active status for more than 90 days without extenuating circumstances. Reporting Process Pipeline Management monitors several reports on an on going basis. Auto denial Prequals greater than 89 days Applications greater than 90 days Applications greater than 120 days Auto Denials Applies to pre qualification applications in the retail and brokered channels. Pre qualifications with a mid credit score less than 540 will be automatically denied unless the application involves a HARP loan. Loan denied for mid credit score below minimum required. 8

9 5/12/2015 Applications Greater than 90 Days Applications 90 Days Old Applications that have been in the active pipeline for more than 90 days will appear on the Applications Greater than 90 Days report. Loan officers with applications appearing on this report will automatically receive an . This will notify you that the application is 90 days old and a status update is required to be provided to the Pipeline Management Department. Conditional Approval Underwriters often issue conditional approvals. The conditions must be approved before a clear to close is issued. If conditions are not met, the application must be denied. Obtaining a Credit Report Credit reports must be ordered through Encompass or Vantage CRM. Loan officers may not obtain a credit report through any other channel. This could inadvertently create a Fair Credit Reporting Act violation. Credit Report Issued Prequalification Preapproval letter issued Application Six data points = GFE date 9

10 5/12/2015 Obtaining a Credit Report It is the policy of Waterstone Mortgage that only one credit report may be obtained for each application unless an exception applies. Processors can obtain an updated credit report in the following situations: Applicant information entered incorrectly (i.e. SSN or name). The initial credit report expired after 90 days, but the application is still active. Branch managers can authorize an updated report on an exception basis. Creditor updates the trade line after correcting inaccurate information. Borrower pays off significant, non revolving debt. Restrictions on Credit Reports Employees of Waterstone must never order a credit report as a favor for anyone, for any reason. Loan officers should be careful about ordering a credit report based on a REALTOR or other lead source. Credit reports may only be obtained with a permissible purpose. HMDA Data Collection Home Mortgage Disclosure Act Purpose Assists the federal government with monitoring lenders for compliance with the Equal Credit Opportunity Act. Applicant s cooperation is voluntary. 10

11 5/12/2015 HMDA Data Collection Collecting Government Monitoring Information ( GMI ) is very important and should not be ignored. GMI data is used in fair lending analyses and is critical to support Waterstone s commitment to fair lending. Read the statement on the Uniform Residential Loan Application (1003) GMI Statement The Federal government requests information for certain types of loans related to dwellings in order to monitor Waterstone s compliance with equal credit opportunity, fair housing, and home mortgage disclosure laws. You are not required to furnish this information, but are encouraged to do so. The law provides that a lender may not discriminate either on the basis of this information, or on whether or not you choose to furnish it. Please provide information related to ethnicity, race, and sex. For race, you may choose more than one designation. HMDA Data Collection Government Monitoring Information ( GMI ) Ethnicity Hispanic/Latino or Not Hispanic/Latino Race applicants may select more than one option. Sex Note: Ethnicity and race are not the same. Internet and mail make instructions available. Do not coach the applicant. This is about how the applicant self identifies. 11

12 5/12/2015 Method of Applying Method of application is critical because it drives what information is required. Face to face interview applicant may choose not to furnish, but loan officer must make the selections base on visual observation and surname. Telephone if applicant chooses not to furnish GMI, move to the next part of the application. For example, do not enter sex based on sound of voice or name. Internet applicant may choose to furnish or not furnish GMI. Note: If applicant chooses not to furnish GMI in a telephone or Internet application, do not override that decision by entering the information after first contact. GMI page Borrower to answer 2. Ethnicity 3. Race 4. Sex Be sure to indicate how the application information was provided. Face to face requires that all 4 sections are complete. Borrower wishes not to furnish GMI All 4 sections must be completed Information Not Provided if the Borrower has indicated that they do not wish to furnish information. 12

13 5/12/2015 Reporting to the Federal Government All financial institutions and mortgage lenders that are subject to HMDA must make an annual report to the federal government by March 1 st. Loan Application Register ( LAR ) Includes GMI, property location, action type and date, and loan program. Inaccurate data results in steep fines by the FDIC. Please respond to inquiries from HMDA/LAR Data Specialists in a timely manner. Contacts Compliance Department Compliance@WaterstoneMortgage.com Pipeline Management Pipeline@WaterstoneMortgage.com System support using the ticketing system on the WMC intranet site. 13

14 PROCEDURE: MULTIPLE CREDIT REPORTS The purpose of this Job Aid is to explain when a subsequent consumer credit report may be obtained before the previously pulled credit report on file expires; and the process for doing so. The Job Aid addresses the following scenarios: Borrower believes that an updated credit report will result in an improved credit score due to recent changes in his or her credit profile. Rapid Rescore, a Kroll Factual Data service. One spouse is removed from a joint application or pre qualification requiring a revised credit report to show an individual applicant. I. Updates Due to Changes in Credit Profile. Loan officers, partners, or processors may not order an updated credit report prior to the expiration of the credit report on file without branch manager approval except to clear an input error. There are two reasons for this policy: 1) ordering multiple credit reports can be costly and the cost is born by the branch; and 2) multiple credit reports increase the likelihood of a Fair Credit Reporting Act ( FCRA ) claim of impermissible purpose. Although WMC discourages obtaining multiple or updated credit reports within a 90 day period, there are times when it is appropriate to obtain an updated report. 1. Borrower disputed a trade line or entry on the initial credit report and has taken the necessary steps to report the dispute to the creditor or credit reporting agency; and the disputed entry has been removed. 2. Borrower has paid down significant debt and confirmed with creditors that relevant trade lines have been updated. (Note: Paying off a large debt to qualify for a loan program may not be acceptable to certain end investors. Please bear this in mind when working with borrowers.) 3. Borrower participated in credit counseling with an outside agency and has taken the recommended steps to improve credit. 4. The examples listed above are meant to illustrate common situations. However, branch managers have the authority to make other exceptions if they believe there is a reasonable cause to do so. A. Obtaining and Documenting Consent. Before an updated credit report is obtained, borrower s authorization must be documented. A consent form has been created for this purpose. (See Exhibit A.) 1) Oral consent oral consent is sufficient. However, the loan officer (or delegate) must read the consent form out loud, in its entirety to the borrower, and document the date and time oral consent was obtained (as shown below). The consent form is available as a custom form in Encompass Page 1

15 2) The consent form also requires branch manager authorization. 3) Written Consent a signed authorization is always better than an oral authorization, so if possible, have the borrower sign the consent and return it in person, by fax, text, or . 4) Upload the completed form to the placeholder labeled Credit Report Authorization. Completed form means both the borrower s consent and branch manager s approval are documented. 5) Order an updated credit report. Reminder: The consumer s initial consent to obtain credit should also be documented on the Borrower Summary Origination 360 screen. Select the appropriate method of consent Page 2

16 II. Rapid Rescore Rapid Rescore is a service offered by Kroll Factual Data. Its purpose is to help consumers more efficiently remove disputed credit information from their credit reports. Consumers may work directly with creditors and credit reporting agencies to remove disputed debt. However, this process can take a lot of time which could jeopardize the loan process, where the Rapid Rescore service expedites the process. This is a costly service, typically exceeding $100. The fee cannot be passed on to the consumer. For that reason, branch manager approval is required before the Rapid Rescore service can be used. The Rapid Rescore service is ordered on line and not through Encompass. Loan processors have the login credentials necessary to order the service. Once branch manager approval is obtained, loan officers should work with their processors to order a Rapid Rescore. Prior to getting involved in the dispute, Kroll Factual Data requires that certain information accompany the order. This includes a written statement from the consumer explaining the basis of the dispute. All required information must be collected before Rapid Rescore can be ordered. III. Revising a Joint Credit Report When married couples apply for a loan or start a pre qualification, they typically get a joint credit report. If later, one spouse is removed from the application or pre qualification, an individual credit report must be obtained. However, it is not necessary to order a new credit report. Loan officers can work with their processors who have the log in credentials necessary to update the credit report through Kroll Factual Data. Please keep in mind that borrowers may not always be added or removed from a loan file. Typically, a new loan application must be started after final action (i.e. denial or withdrawal) has been taken on the current application. Whether or not a borrower can be added or removed depends on several factors, including: Is the loan in pre qual or my pipeline? Has the file been disclosed? Has the file been submitted to an underwriter? What is the loan program? For assistance or questions related to adding or removing borrowers, please contact pipeline@waterstonemortgage.com Page 3

17 Exhibit A CONSUMER CONSENT TO OBTAIN CREDIT REPORT Borrower(s): Date: Loan Number: Property Address: Loan Originator: By signing below I (we) authorize Waterstone Mortgage Corporation and its employees or agents to obtain and verify information about me (including one or more credit reports, information about my employment and banking and credit relationships) that Waterstone Mortgage Corporation may deem necessary or appropriate in evaluating my (one or more of the following): My pre qualification for a mortgage loan, my pre approval for a mortgage loan, my loan application. If I complete a loan application, which is then approved and the loan is made, I (we) also authorize Waterstone Mortgage Corporation, its employees and agents, to obtain additional credit reports and other information about me in connection with reviewing the account, increasing the available credit on the account (if applicable), taking collection on the account, or for any other legitimate purpose. Borrower: Date Borrower: Date (For Branch Manager s Approval) Branch Manager s Name: Branch Manager s Initials: Date:

18 Department: Job Aid For: Related Policies: Related Department Job Aids: Field Consumer Copy of Credit Report Fair Credit Reporting Act Multiple Credit Reports Lenders or users of credit reports are restricted to obtaining reports for what are considered permissible purpose under the Fair Credit Reporting Act ( FCRA ). For lenders, the two main permissible purposes are: in connection with a request for credit, or in connection with a pre-qualification request. In the past lenders were prohibited from sharing a printed copy of the credit report with their clients. This is because Credit Reporting Agencies prohibited lenders by contract from providing a copy of the report to their clients. This position has changed. WMC s service provider, Kroll Factual Data does allow its users to deliver a consumer copy of the credit report upon request. Kroll makes the consumer version available on its website as shown below. Only processors log in credentials allow direct access to the Kroll Factual Data website. Therefore, loan officers must work with their processors to obtain the consumer copy. Loan officers are unable to print a copy with their credentials. Consumer Copy of Credit Report Page 1 of 2 Created on

19 Although lenders may now provide a printed copy of the credit report to their borrowers, certain important considerations remain. Namely, when providing a printed copy of the consumer credit report to a borrower, loan officers must comply with the following: Only the Consumer Copy may be delivered to the borrower. There are differences between the lender and consumer versions, so delivering the lender version would create a compliance violation. Offering a free credit report in exchange for attending a meeting or a seminar is prohibited. Lenders may only obtain a consumer credit report with a permissible purpose, as described above. Once that has been established, the Consumer Copy may be provided. Lenders may discuss the content of a consumer credit report with the borrower, but should refrain from giving more than general guidance in relation to credit counseling. For example, a loan officer should not encourage borrowers to pay off certain debts with the promise of an increased credit score or loan approval. Loan officers must make it clear that they are not giving legal advice or offering credit repair services. Whenever possible, loan officers should get a borrower s written consent to obtain a consumer credit report. Although not explicitly required by the FCRA, a borrower s written consent helps prevent a future claim regarding permissible purpose. A consent form is available in Encompass as a custom form. Created by: Kate Johnson Title: VP/Compliance Consumer Copy of Credit Report Page 2 of 2 Created on

20 Department: Job Aid For: Compliance Adding/Removing Borrowers from Loan Active Loan File Related Policies: Related Department Job Aids: ECOA-Taking Action on Application Summary: This Job Aid explains the circumstances under which borrowers may be added or removed from an active application (i.e. my pipeline ) through a valid changed circumstance. It does not apply to files in Prospects or Pre-Qualification.* First, it is important to understand that the Equal Credit Opportunity Act (ECOA) states that a borrower must receive an Adverse Action Notice if a request for credit is denied. If a borrower is added or removed from an application because the loan would not be approved otherwise, it is essentially a denial for credit terms requested. That is why borrowers may only be added or removed from an existing application BEFORE a credit decision is made. That event occurs at the Submittal milestone. Once the loan file has been submitted to Underwriting, the application is considered completed and a credit decision made by the underwriter (i.e. denial/approval/conditional approval). Loan officers, partners, and processors should never deny a loan. They can discuss Waterstone or investor policy overlays, but must leave it up to the borrower to decide whether to pursue an application in spite of potential barriers to approval, or restructure the application in some way (e.g. adding or removing a borrowing, changing loan program) to improve the likelihood of an approval. As long as a credit decision has not been made, borrowers have more options around restructuring a loan. Adding a Borrower Prior to Submittal: As stated above, borrowers may be added to loan files that have not reached the Submittal milestone because a credit decision has not been made. 1. Add the new borrower s information into Encompass. 2. If the loan has already been locked, contact the Lock Desk to update the lock. 3. Contact Disclosure Desk and request re-disclosure for a changed circumstance. Removing a Borrower Prior to Submittal: As stated above, borrowers may be removed from loan files that have not reached the Submittal milestone because a credit decision has not been made.. 1. If the loan has already been locked, contact the Lock Desk to update the lock. 2. Contact Disclosure Desk and request to have the borrower s name removed from Encompass and redisclosure made for the changed circumstance. (Note: a loan officer or processor persona does not permit removing borrowers. Do not attempt to remove a borrower by removing information related to the borrower from Encompass. The loan will continue to show as a joint application if the name does not appear.) Adding or Removing Borrower After Submittal: As stated above, once a loan has been submitted to underwriting, it is generally too late to add or remove a borrower from Encompass. This is because a credit decision has been made and the borrower(s) is entitled to an Adverse Action Notice if Waterstone cannot Adding/Removing Borrower from Loan File Page 1 of

21 grant credit on the terms initially requested. Typically, the only available course of action is to take action on the active loan application and start a new file with the newly structured terms. 1. Contact Pipeline@waterstonemortgage.com and request a denial or withdrawal. Be sure to include all relevant information. 2. Inform the borrower to expect an Adverse Action Notice (if applicable). 3. Start a new application with the newly structured terms. 4. Disclose with a new initial disclosure package within three business days. (Note: the earliest date the loan may close is seven business days (every day but Sunday and federal holidays) from the date the initial disclosure package is delivered. Counter-offer Exceptions: At times, an exception to the policy is allowed. Depending on the circumstances of the loan, a borrower may be added or removed from the loan after Submittal. 1. FHA loan applications If a loan is FHA, borrowers may be added or removed from a loan file after Submittal. This is because HUD does not like lenders cancelling and re-ordering FHA case numbers. They prefer lenders to use the same case number regardless of any restructuring. 2. Closing is imminent the loan will be closing in less than seven days. 3. There are special extenuating circumstances. For exceptions, a counter-offer may be required. Counter-offers can be tricky because they essentially say that we cannot offer credit on the terms originally requested, but we are prepared to offer credit under these terms In this way, a counter-offer can be viewed as a firm offer of credit. That can only be done with the expressed consent of the underwriter assigned to the file. To request an exception: 1. Pipeline@waterstonemortgage.com and the underwriter assigned to the file with a detailed explanation of why an exception is requested. 2. Pipeline and Underwriting will review the facts and grant an exception if warranted. 3. If an exception is granted, Pipeline will issue a counter-offer if required. 4. Underwriting will release the file back to the loan officer for re-structuring and re-disclosure. 5. Contact Lock Desk to update the lock. 6. (Remove borrower) contact Disclosure Desk to remove a borrower and re-disclose for changed circumstance. 7. (Add borrower) add borrower data into Encompass and contact Disclosure Desk to re-disclose for changed circumstance. *To remove a borrower from a loan file in Prospects or Pre-Qualification, submit a ticket to Encompass with your request. Borrowers may be removed at any time as long as the mid-credit score exceeds the minimum required (540). Created by: Kate Johnson Title: VP/Compliance Adding/Removing Borrower from Loan File Page 2 of

22 PROCEDURE: EQUAL CREDIT OPPORTUNITY ACT (ECOA) (TAKING ACTION ON AN APPLICATION) In accordance with the Equal Credit Opportunity Act ( ECOA ) and the Fair Credit Reporting Act ( FCRA ), an applicant must receive notification within thirty days after submitting a completed application concerning the lender s approval of, counteroffer to, or denial of the application. Although an approval may be expressed orally, a denial must be in written form on an Adverse Action Notice or Statement of Denial. As a general rule, only the Pipeline Management or Underwriting Departments may deny a loan application. Loan officers may counsel applicants by explaining loan program guidelines or WMC overlays, but should never express a judgment even informally. For example, a person applies for a loan and the loan officer runs DU and the findings indicate the application does not meet FNMA guidelines. The loan officer may explain to the applicant that it is the policy of Waterstone not to approve applications that do not meet agency requirements. The loan officer should go on to discuss all other options available to the applicant. In the end, the loan officer will notify Pipeline Management. The Pipeline Management Department will review the file and determine if a denial is appropriate and then prepare and deliver the Statement of Denial. Even though Pipeline Management makes the decision to deny, they rely on information from the loan officer to help make the appropriate determination. Therefore, when contacting Pipeline Management for a denial request, loan officers should provide as much information as possible about what transpired with the borrower so that Pipeline can make the correct decision. There is really no such thing as too much information. Loan officers must also include supporting documentation when contacting Pipeline Management. For example, a loan officer may report that the applicant wants to cancel the application because the property value is too low. There should be an appraisal in the file to support this. A denial should not be based on speculation. Loan officers should never discourage an application as this would be a violation of the ECOA. Loan officers may explain loan program guidelines and leave it up to the applicant to proceed with an application. Usually consumers will be able to read between the lines and determine that they are not likely to be approved and then can decline to submit an application at that time. Approved Applications Loan applications are approved after a complete underwrite. Loan officers should never approve the loan or make promises that an approval decision can be made in minutes. The Underwriter assigned to the file will issue a clear to close approval which signifies that the loan has been approved without any conditions attached (other than those that are covered at closing). The Underwriter uploads a copy of the approval letter to the efolder Page 1

23 Withdrawn Applications Determining whether an application is withdrawn or denied is not always an easy analysis. The ECOA states that in order for an application to be considered withdrawn, the applicant must expressly withdraw the application before a credit decision is made. This means that applicants must clearly express the desire to discontinue the application process. An applicant s intentions cannot be inferred from behavior. For example, if an applicant simply stops communicating with the loan officer, one might assume that the person does not want to continue. However, this does not meet the definition of withdrawn application for the ECOA. If the loan officer cannot reach the applicant, the application must be denied for incomplete application. To complicate matters more, what constitutes expressly withdrawn is not as obvious as one would like it to be. An applicant saying, I want to withdraw my application or I want to go with another lender is not always sufficient to demonstrate a withdrawn application. The proper designation really depends on what happened prior to the withdrawal request. You should ask yourself, why did the applicant back out? If nothing happened, for example, the applicants changed their minds about refinancing before the application process got started, the application is withdrawn. This is pretty straightforward. An application would be treated as denied if the decision to withdraw is made after receiving some bad news from the lender. As in the example above, during the loan application process, the loan officer runs an AUS and gets a refer, caution, or approve/ineligible. Assuming the loan officer does not ask for an exception from the Underwriting Department, or the applicant does not choose a different loan program, this application would be denied by the Pipeline Management Department for whatever reason(s) is indicated from the AUS findings. On the other hand, bad news from a source other than the lender could support a withdrawal. For example, an applicant applies for a loan to purchase a home, but negotiations break down and the offer is ultimately refused by the seller. This is a withdrawn application. Another example would be an unacceptable home inspection. Typically an acceptable home inspection is a condition of the purchase agreement, not the loan. Thus, if the home inspection is unacceptable and the buyer backs out of the purchase, this would be a withdrawal because the bad news did not come from the lender or someone working on behalf of the lender. However, had the lender required the home inspection as a condition of the loan and the inspection was unacceptable, the application would be denied. Please see Exhibit A for illustrative examples of denied and withdrawn loans. As a general rule, the farther along the application progresses, the more difficult it is to withdraw. This is because typically more information has been collected and evaluated, such as a credit report or AUS findings. Normally, submission to underwriting marks the point of no return. It is very difficult to withdraw an application when it reaches this point because the decision making process is underway. However, if a loan is suspended in underwriting because the file is incomplete, the application can be withdrawn if the applicant clearly expresses a desire to withdraw from the process instead of providing additional documentation. Loan officers will need to work with the underwriter to determine if the application can be withdrawn or if it should it be denied. If an application meets the definition of withdrawn, the loan officer must make an entry in the Conversation Log providing sufficient information to support the withdrawal. At a minimum, this must include how the withdrawal request was made, who made the request, on what day and at what time the request was made, and a detailed reason for the withdrawal. Loan officers should upload any relevant documentation to support the request. Next the loan officer must notify Pipeline Management so that the file can be properly coded as application withdrawn Page 2

24 When entering a comment into the Conversation Log, the comment needs to be added as a separate entry. That is, the comment should not be added to an existing comment. A Conversation Log entry is made as follows: a) Click on Conversation Log under Tools. b) Click on new conversation icon. c) Type Application Withdrawn in Company field and then type in the explanation. d) Save the entry prior to exiting the loan record. If the Underwriter issues a clear to close and the applicant does not accept the offer, the application is considered approved, not accepted. Approved, not accepted applications are similar to withdrawn applications in that no notification is required if the applicant refuses the offer Page 3

25 Denied Application An application is denied if we are unable to grant credit on the terms requested. The decision to deny can occur at any time between application and final approval. If an application is denied early in the process, it is usually because the applicant cannot meet loan program requirements or Waterstone overlays, or the collateral offered as security for the loan is unacceptable (e.g. LTV too high or condominium is not on the eligible list). Applications that make it to underwriting are typically denied for credit reasons such as an excessive debt to income ratio, insufficient cash reserves, or an inability to verify credit related information (e.g. income, assets). If the underwriter denies an application, he or she will update Encompass to indicate the reason and will then notify Pipeline Management so that a Statement of Denial may be prepared and delivered in a timely manner. Underwriters often issue a conditional approval which means the loan will be approved if the applicant can satisfy the conditions. A conditional approval is not an approval. If the loan has been conditionally approved and the applicant cannot meet the conditions, the loan would typically be denied. The assigned underwriter should be able to assist with the appropriate reason for denial; or to determine the loan approved, not accepted. When a conditional approval is made, the underwriter should notify the loan officer and processor. It is very important that the loan officer or processor keep in touch with the underwriter. Otherwise, the file will languish with the underwriter. If the applicant cannot or chooses not to clear the conditions, the underwriter will need to notify Pipeline Management with the final action so that a denial notice can be prepared and delivered if appropriate. Unaccepted counteroffers also result in denied applications. For example, an applicant applies for a cash out refinance based on the estimated collateral value. The appraisal comes in light so the loan officer discusses restructured terms with the applicant. The applicant says, No thanks. Although at first glance this may appear to be a withdrawal request, it is not. This is a denial based on collateral. This is because the original request was denied and the applicant did not accept the counteroffer. Had the counteroffer been accepted, the application would go forward with the changed circumstance. Counteroffers The ECOA includes regulations governing counteroffers. WMC does not offer a formal counteroffer program. The only exception would be a restructured transaction based on a change between the estimated and actual collateral value as described above. Otherwise, the initial application must be denied for the appropriate reason and a new application started if appropriate. For example, if an application cannot be approved because the applicant is not creditworthy, but would be creditworthy with an acceptable co borrower, the first application will be denied for the appropriate reason, and the applicant can begin again with a co borrower. (Note: If the initial application involves an FHA loan with a case number assigned, a co borrower may be added or removed from an application without starting a new application. This exception is related to FHA case assignment restrictions.) Page 4

26 Exhibit A Illustrative Examples of Withdrawn and Denied Loans 1. Collateral Denied Application. Applicant owes $150,000 on existing mortgage loan. The last time the property was appraised, the appraised value was $225,000. The applicant applies for a cash out refinance of $180,000 under a conventional program. After closing costs are deducted, the applicant expects to receive $20,000. The appraisal comes in at $205,000. The loan officer explains that we can t do the loan on the original terms, but we could try again with less cash received at closing. The applicant says, No thank you. I want to cancel my application. On its face, this looks like a withdrawal because the applicant expressed a desire to cancel the application. However, this is truly a denial because credit was denied on the original terms (i.e. $180,000/$225,000) and the applicant refused the counteroffer. Thus, this application is denied for collateral. Withdrawn Application. Applicant owes $150,000 on existing mortgage loan. The last time the property was appraised, the appraised value was $225,000. The applicant applies for a cash out refinance of $180,000 under a conventional program. The applicant receives his initial disclosure package. The loan officer contacts the applicant to see if he would like to proceed with the loan. The applicant says that he has been talking with his neighbors and has heard that property in the area is not appraising at values common a few years ago when he got his last appraisal. Consequently, he wants to withdraw the application to save on the appraisal cost. In this scenario, this is a withdrawn application. This is because we have no authoritative source of value such as an appraisal. The applicant is merely speculating about the outcome. It is quite possible that the appraisal, if ordered, would support the expected value. Withdrawn Application. The applicant makes an offer to purchase a property contingent on an acceptable home inspection. WMC does not normally require a home inspection as a condition of the loan. The home inspection identifies some serious problems with the property so the applicant cancels the offer. This is a withdrawn application because the application has not been denied by WMC. The applicant is choosing to back out before the process is complete. However, if WMC required the home inspection as a condition of the loan and the inspection failed, the application would be denied. You can generally tell whether or not the lender requires a particular settlement service (e.g. home inspection, pest inspection, survey) by looking at Blocks 3 and 6 of the GFE. These sections are reserved for required services. If Block 3 or 6 does not identify the service in question, one can assume that the service is not a requirement for loan approval. 2. Adding/Removing Co applicants Denied Application. Husband and wife apply for a loan. During underwriting, it is discovered that the husband has some credit issues that will cause this loan to be denied. It appears that the application could go through if the wife applied alone. This is a denied application because the husband is being removed from the application in order to get the loan approved. Withdrawn Application. Husband and wife apply for a loan. Both qualify individually. Upon further consideration, they realize that if the loan is in just the wife s name, they can expedite the loan process. This is a withdrawn loan because removing the spouse from the application is the couple s choice and not the result of derogatory information affecting qualification. Denied Application. Applicant applies for an individual loan. AUS findings show that she is ineligible for various reasons including excessive DTI. She decides to reapply with her significant other as a co borrower. This is a denial because the Page 5

27 applicant does not meet program requirements (i.e. excessive DTI). This application will be evaluated by Pipeline Management and a denial notice mailed for the appropriate reason(s). Withdrawn Application. Wife applies for an individual loan and is DU eligible. She decides to add her husband because she does want to take out a mortgage loan without him as a co borrower. This is a withdrawn application because she is adding her husband by choice and not because of her inability to qualify on her own. Note: The requirement to start a new loan application when a co borrower is added or removed is a WMC policy. This is done to help control the Pipeline and to ensure compliance with FCRA and HMDA. FHA loan applications with an active case number assigned are treated differently because of issues related to FHA Connection. In these cases, a co borrower can be added or removed while maintaining the same application number. 3. Incomplete Application Denied Application. The applicant submits an application. The loan officer and processor work with the applicant to bring in additional documentation to process the loan. The applicant drags his feet and keeps saying that he will take care of this. A month passes and the applicant no longer returns phone calls or s. One might assume that the application is withdrawn because the applicant lost interest. However, this is a denial because the applicant never expressly denied the application. The reason for denial is incomplete application. Withdrawn Application. The applicant submits an application. The loan officer and processor work with the applicant to bring in additional documentation to process the loan. The applicant drags his feet and keeps saying that he will take care of this. The loan officer contacts the applicant by phone and the applicant states that he does not want to continue. This is a withdrawn application because the applicant expressly withdrew the application. The loan officer made actual contact and spoke with the applicant about his intentions. 4. Program Ineligible Denied Application. The applicant submits an application. The loan officer obtains a credit report and that looks good. The processor runs AUS and gets an ineligible or caution response. This indicates that the loan does not meet secondary market requirements. The loan officer suggests that the applicant resubmit the application through the brokered channel. The borrower says, No thank you. Even though this may appear to be a withdrawal by the applicant, it is truly a denial for the reason identified on the AUS findings. Withdrawn Application. The applicant submits an application. The loan officer obtains a credit report and that looks good. The processor runs AUS and gets an ineligible or caution response. The loan officer reviews the findings and realizes that some of the information entered needs to be changed. The loan officer runs another DU and this time there is an eligible response. The applicant discusses his options with the loan officer and decides not to continue. This is a withdrawn application because the applicant was DU eligible at the time he made the decision to withdraw the application. In the same scenario, the facts are changed as follows. The AUS indicates ineligible. The loan officer realizes that inaccurate information has been entered. The applicant backs out of the transaction before an updated DU is run. In this case, the application should still be considered withdrawn. However, the loan officer must explain to Pipeline Management that the application appears to be ineligible, but that this is a false finding based on inaccurate information. If the loan officer does not communicate this fact to Pipeline Management, they are forced to evaluate on what information they have which is an ineligible DU and subject to denial Page 6