1 Action Taken 2 PRE-APPLICATION Do you Prequalify? Do you have Preapprovals? Which road do you take? Be Consistent! 3 1
Discrimination & Fair Lending During the Pre-Application Process - use caution gathering information while asking questions in a nondiscriminatory manner Page 2 4 Having difficulty determining when disclosures must be provided to the consumer? 5 Model H-26 Effective 10-3-2015 If a lender or mortgage broker provides a written estimate of terms or costs BEFORE providing the LE, it must include the following statement: Your actual rate, payment and costs could be higher. Get an Official Loan Estimate before choosing the Loan. Page 2 6 2
What begins as providing information & prequalifying Can turn into an evaluation of creditworthiness and possibly an application for credit Page 2 7 Whether a prequalification becomes an Application under ECOA depends on how you respond not what the consumer says or asks 8 ECOA/Reg B & HMDA/Reg C Application an oral or written request for an extension of credit made in accordance with the procedures established by a creditor for the type of credit requested Page 2 9 3
The definition of Application found in Regulation Z is used to prompt the Loan Estimate and other disclosure requirements Page 2 10 Under Regulation Z TRID Application means submission of: Consumer s Name Monthly Income Social Security Number Property Address Estimate of the Property Value Amount of Loan being sought Page 3 11 When consumer is told they DO NOT qualify (with or without a property) When enough information is collected to deny a loan, & the consumer is told they do not qualify, regardless of the amount of information a creditor has treated the prequalification as an Application and it is subject to Adverse Action Page 3 12 4
REMEMBER ECOA/Reg B triggered by Action Taken Retention Requirements for 25 Months Application (& any attachments) Notification of Action Taken Statement of Specific Reasons Any Consumer Statement alleging Violation 13 Lenders may offer a PREAPPROVAL PROGRAM for Home Purchase Loans (but they may be referring to it as Prequalifying) Do you have a Preapproval Program? Page 3 14 What is a Preapproval Program? 15 5
ECOA & HMDA Definitions are the Same Preapproval Programs A request for preapproval for a home purchase loan is an application if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. The written commitment may not be subject to conditions other than: Conditions that require the identification of a suitable property; Conditions that require that no material change has occurred in the applicant s financial condition or credit worthiness prior to closing; and Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the lender ordinarily attaches to a traditional home mortgage application (such as certification of a clear termite inspection). Page 3 16 Preapproval Requests with NO PROPERTY Identified that are DENIED HMDA Reporting is REQUIRED Request for Preapproval Use Code 1 Preapproval was requested Type of Action Use Code 7 Preapproval Request Denied ECOA/Reg B Adverse Action REQUIRED Page 4 17 Preapproval Requests with NO PROPERTY Identified WITHDRAWN or INCOMPLETE If incomplete or withdrawn & no credit decision has been made, & no property identified 18 HMDA Reporting is NOT Required ECOA/Reg B Notice of Incompleteness may be incorporated in written commitment Page 4 6
Model C-6 ECOA/Reg B Notice of Incompleteness After carefully reviewing your submission, it is missing information we will need in order to make a credit decision. Please provide the requested information specified below, within [30 days] of this correspondence. If you do not reply by (date), we regrettably will be unable to give any further consideration to your request. Page 4 19 Preapproval Requests with NO PROPERTY Identified APPROVED but fails to originate HMDA Reporting Optional, but if reported: Request for Preapproval Use Code 1 Preapproval was requested Type of Action Use Code 8 (Mandatory Reporting 1-1-2018) Preapproval request approved but not accepted Do not use Code 2 Application approved but not accepted ECOA/Reg B Notice of Incompleteness may be incorporated in written commitment 20 Model C-6 ECOA/Reg B May be Modified for Preapprovals Notice of Incompleteness Lenders should use own language for Example: Your request for credit has been preapproved, however; after carefully reviewing your submission, it is missing information we will need in order to continue. Please provide the requested information specified below, within [30 days] of this correspondence. If you do not reply by (date), we regrettably will be unable to give any further consideration to your request. 21 7
(Lenders should use your own language) This preapproval of a home purchase loan is conditioned on the following: 1. Identification of a Suitable Property; 2. No material change occurs or has occurred in your financial condition or creditworthiness prior to closing; 3. Limited conditions that are not related to your financial condition or creditworthiness that we as a lender normally attach to a traditional mortgage loan application, such as a certification of clear termite inspection, etc. 22 Preapproval Request Approved & then Property Identified APPLICATIONS which have passed the Preapproval Stage must be reported under HMDA as Applications If the request for preapproval is approved, a written commitment is issued & then the borrower identifies a property, the type of action taken on HMDA must be one of the choices for applications because the application has passed the preapproval stage 23 Types of Action Taken for Applications 1. Loans Originated 2. Application Approved but not Accepted 3. Application Denied 4. Application Withdrawn 5. File Closed for Incompleteness 6. Loans Purchased by your Institution 7. Preapproval Request Denied 8. Preapproval Request Approved but Not Accepted 24 8
Use Code 1 Loan Originated For a loan that is originated, including one resulting from a request for preapproval For a counteroffer (you offer to the applicant to make the loan on different terms or in a different amount from the terms or amount applied for), use Code 1 if the applicant accepts the counteroffer 25 Code 1 Loan Originated Lenders should report loans that the lender made the credit decision on and that closed in the same calendar year Rescinded loans after closing may be coded as loan originated or coded as approved but not accepted 26 Use Code 2 Application Approved but Not Accepted When the application is approved but the applicant (or the loan broker or correspondent) fails to respond to your notification of approval or your commitment letter within the specified time. Do not use this code for a preapproval request 27 9
Code 2 Application Approved but Not Accepted Borrower has satisfied underwriting conditions but loan fails to originate/consummate If borrower does not meet customary loan-closing conditions such as clear title requirements, survey, acceptable title insurance binder, clear termite inspection, a settlement statement showing adequate proceeds from the sale of previous home when applicant plans to use the funds for transaction 28 Code 3 Application Denied Borrower supplies sufficient information for credit decision and lender either denies or extends counteroffer If counteroffer is made and applicant does not accept or fails to respond, lender reports the denial on the original terms /6 29 30 C-4 Notice of Action Taken, Statement of Reasons & Counteroffer Date Dear Applicant: Thank you for your application for. We are unable to offer you credit on the terms that you requested for the following reason(s): We can, however, offer you credit on the following terms: 10
If this offer is acceptable to you, please notify us within [amount of time] at the following address:. Our credit decision on your application was based in whole or in part on information obtained in a report from [name, address and [toll-free] telephone number of the consumer reporting agency]. You have a right under the Fair Credit Reporting Act to know the information contained in your credit file at the consumer reporting agency. The reporting agency played no part in our decision and is unable to supply specific reasons why we have denied credit to you. You also have a right to a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that any information contained in the report you receive is inaccurate or incomplete, you have the right to dispute the matter with the reporting agency 31 Conditional Approvals when Applicant does not meet conditions become Application Denied Conditional Approvals subject to Underwriting conditions for example: (1) Lower debt to income and loan to value ratios; or (2) Verification or confirmation, in whatever form the lender ordinarily requires, that the borrower meets underwriting conditions concerning the borrower s creditworthiness (3) Counter-offer: i.e., a demand for higher down payment /6/7 32 Use Code 4 Application Withdrawn Only when the Application is expressly withdrawn by the applicant BEFORE a credit decision is made Under ECOA/Reg B an Applicant may choose to withdraw an approved application, BUT it will not be coded as Application Withdrawn under HMDA because a credit decision has already been made 33 11
Code 4 Application Withdrawn Do not use code 4 if a request for preapproval is withdrawn, preapproval requests that are withdrawn are not reported under HMDA /6 34 Follow-up! Within 30 days after receiving an application that is incomplete regarding matters that an applicant can complete, notify by either: Notice of Action Taken (ex: Model C-1) or Denied for Incompleteness Notice of Incompleteness (ex: Model C-6) to inform applicant that failure to provide requested information will result in no further consideration being given to their application 35 Use Code 5 File Closed for Incompleteness If you sent a written Notice of Incompleteness and the applicant did not respond to your request for additional information within the period of time specified in your notice Do not use this code for requests for preapproval that are incomplete, these preapproval requests are not reported /6 36 12
Code 5 File Closed for Incompleteness If a credit decision has NOT been made and the lender makes a condition involving submission of additional information about creditworthiness that is needed to make a credit decision & the applicant does not respond in the time allowed /6 37 Code 6 Loan Purchased by your Institution Lenders should report only loans that it purchased during the calendar year, but does not report loans it declined to purchase 38 Code 7 Preapproval Request Denied When NO PROPERTY has been identified and the request for preapproval has been denied 39 13
Code 8 Preapproval Request Approved but not Accepted (Mandatory Reporting January 1, 2018) When NO PROPERTY has been identified and the request for preapproval has been approved but fails to originate/consummate 40 ECOA/Regulation B Page 8 41 ECOA/Reg B requires Creditors: 1. to notify applicants of Action Taken 2. report credit history in both names 3. retain records of credit applications 4. collect government monitoring info 5. provide copies of appraisals/valuations Page 8 42 14
ECOA/Reg B & Fair Housing Act Prohibit Discrimination on the basis of: Sex, Marital Status, Race, Color, Handicap, Familial Status, Religion, National Origin, Age, Receipt of Public Assistance Income, and for Good Faith Exercise of Rights under Consumer Credit Protection Act Page 8 43 Creditor shall notify Applicant of Action Taken within 30 Days after receiving a completed application concerning approval, counteroffer or denial of the application 30 Days after taking adverse action on an incomplete application, unless a notice of incompleteness is provided 30 Days after taking adverse action on an existing account 90 Days after notifying the applicant of a counter offer, if applicant does not expressly accept the credit offered Page 8 44 Complete Application Lenders are required to provide notification of action taken within 30 days of receipt of a Complete Application An application for which the institution has received all the information it regularly obtains & considers in evaluating applications for the same type & amount of credit requested, including but not limited to credit reports, VOE s, VOD s, information requested from applicants on any approvals or reports by government agencies to guarantee, insure or provide security for the credit or collateral. Page 8 45 15
Incomplete Applications Model C-6 ECOA/Reg B Notice of Incompleteness After carefully reviewing your submission, it is missing information we will need in order to make a credit decision. Please provide the requested information specified below, within [30 days] of this correspondence. If you do not reply by (date), we regrettably will be unable to give any further consideration to your request. Page 9 46 Withdrawn Applications Page 9 47 Denied Applications Notice of Adverse Action Page 9 48 16
Counter Offers Page 11 49 C-4 Notice of Action Taken, Statement of Reasons & Counteroffer Date Dear Applicant: Thank you for your application for. We are unable to offer you credit on the terms that you requested for the following reason(s): We can, however, offer you credit on the following terms: Page 11 50 If this offer is acceptable to you, please notify us within [amount of time] at the following address:. Our credit decision on your application was based in whole or in part on information obtained in a report from [name, address and [toll-free] telephone number of the consumer reporting agency]. You have a right under the Fair Credit Reporting Act to know the information contained in your credit file at the consumer reporting agency. The reporting agency played no part in our decision and is unable to supply specific reasons why we have denied credit to you. You also have a right to a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that any information contained in the report you receive is inaccurate or incomplete, you have the right to dispute the matter with the reporting agency 51 17
[We also obtained your credit score from the consumer reporting agency and used it in making our credit decision. Your credit score is a number that reflects the information in your consumer report. Your credit score can change, depending on how the information in your consumer report changes. Your credit score: Date: Scores range from a low of to a high of. Key factors that adversely affected your credit score: [Number of recent inquiries on consumer report, as a key factor] [If you have any questions regarding your credit score, you should contact [entity that provided the credit score] at: Address: [Toll-free] Telephone number: ] 52 You should know that the Federal Equal Credit Opportunity Act prohibits creditors, such as ourselves, from discriminating against credit applicants on the basis of their race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract), because they receive income from a public assistance program, or because they may have exercised their rights under the Consumer Credit Protection Act. If you believe there has been discrimination in handling your application you should contact the [name and address of the appropriate Federal enforcement agency listed in appendix A]. Sincerely, 53 What is Adverse Action? Number of Reasons Given Page 12 54 18
REMEMBER ECOA/Reg B triggered by Action Taken Retention Requirements for 25 Months Application (& any attachments) Notification of Action Taken Statement of Specific Reasons Any Consumer Statement alleging Violation Page 11 55 QUIZ Once you have completed the Quiz for this Boot Camp 360 Webcast Training, that is included in the workbook, the Answer Key along with your Certificate of Completion have also been provided for you records. If you have questions or need assistance please email David@ficconferences.com 56 57 19