RESPA - Home Loan Preapproval
Answer by David Dickinson and Lucy Griffin, BOL Gurus Guru Bio
Question:
Under new RESPA regs, is it ok to give a preapproval for a home loan with a property to be determined (TBD)?
Answer by David Dickinson:
This is an area of great debate. Some say RESPA doesn't apply until a property is identifiedas this doesn't meet the definition of "application" under RESPA. Some say (this is the camp I'm in) that you wouldn't want to issue a preapproval because of the following logic:
1. You don't issue a preapproval until you have verified info.
2. You can't order/require verifications until a GFE is issued.
3. If you do issue a GFE without a property identified, you cannot consider the identification a "changed circumstance" [this is in the RESPA FAQs #8(ii) in the "GFE Changed Circumstances" section].
The RESPA preamble states:
In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify the information provided by the applicant on the application. Loan originators, however, can require applicants to provide such verification information after the GFE has been provided in order to complete final underwriting. In addition, the rule does not bar a loan originator from using its own sources before issuing a GFE to independently verify the information provided by the applicant.
Similarly, HUD has long supported a public policy goal of creating a circumstance where consumers can shop for a mortgage loan among loan originators without paying significant upfront fees, or requiring burdensome documentation, that impede shopping. To this end, and consistent with the Federal Reserve Board's recently issued revised regulations limiting the fees that a consumer may be charged for the delivery of TILA disclosures, loan originators may not charge consumers anything more than the cost of a credit report prior to issuing a GFE. Here's one place in the BOL Threads where this is being discussed: http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1323149&page=1
Answer by Lucy Griffin:
When issuing a preapproval, there is usually no property. This means that RESPA can't touch it until there is a property. The big question is what HUD would say happens when the property is selected. A strict reading of RESPA would lead to the conclusion that RESPA cannot reach the preapproval. In fact, HUD has basically said that the question of preapproval is for the Fed to determine, not HUD. However, in spite of that, HUD has a clear record of grabbing whatever situations they can. My advice is that if you have a preapproval program, do not issue anything that looks remotely like a GFE until there is a property selected.
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