Scenario: A loan was canceled as "Withdrawn" and an AAN was sent denoting the same. Upon further review, the loan should have been canceled as "Denied" due to inability to provide income documentation.

Question: Should a new AAN be sent showing the real cancelation reason? Or is any AAN (whether labeled correctly or not) considered sufficient?

An AAN is not required for withdrawals. If the loan should have been denied, a notice should be provided so the applicant knows why they were denied.

I agree that an AAN is not required but for some reason they "send" them out for any cancelation. When I say "send" I am saying only that they go through the motions of putting a copy of it in the file. No one knows for sure if these AANs were actually ever sent.

Other than your esteemed opinion, which I appreciate greatly, is there a cite that I can bring to management to convince them that these old AANs need to be re-sent with the proper denial reasons? Management doesn't want to go back and send these for fear of upsetting the borrowers (some of these are several months old and there are potentially hundreds of them out there).

Look at Reg B Section 202.9 (2). It spells out the requirements for notification of adverse action. It does not sound like your 'notice' used for withdrawals meets the requirments. Especially if they are not actually mailed to the applicant(s) .

Thank you hmdagal! I knew I could count on your wisdom!

We have a similar issue, and have made the decision (and are documenting in the file) that we will not send an AAN to an applicant if it's over 6 months old even it it should have received one. Way too often, the loan officer says that it was just an "inquiry" or a "prequal"... but there maybe some documentation in the file that they either pulled a credit report, or also got some other docs, like paycheck stubs, etc. Does anyone let their loan officers get away with having these as "prequals" since they say they never submitted it to underwriting or ran DU? And often it is true, that the applicant goes to another borrower, or decides not to refi. Any thoughts in how much trouble I may be in for not sending AAN or incomplete notices?

If adverse action was taken, then an AAN should be sent. If you make a credit decision, the pre-qual becomes an application and subject to the 202.9 disclosures. Look to the Official Staff Interpretations of 202.2(3).

Your decision to document the file not to send an AAN if the account is X months old is a violation of Reg. B. You either have a violation for not sending one, or you have a violation for sending one late. A violation for sending one late is better than for not sending one. Your regulator could make you do a file search back to the last exam and send one for all that did not receive an AAN.

When faced with a delayed AAN, I have always advocated a specially crafted one that starts out with some schmoozy language that we are closing our file, or some other "intro" language so they won't think we are totally crazy, and then go into the required language for the denial.

OK, I was afraid of your answer Dan... I do realize we have a violation either way if we had enough information to deny the loan. But what about the argument that a loan decision was never made? What if the loan could likely have been made, but the loan officer never submitted it to underwriting, since they hadn't gotten all the required documentation from the borrower? In this case, it seems like we should have sent an Incomplete Notice, but if that never happened... how would you handle that if your loan officer brings it to you 6 months later? Would you code it as incomplete? Or go with the loan officer and call it a prequal request and the borrower never "applied", and not have it be subject to Reg B or HMDA? And lastly, same situation, you have an app and pulled a credit report, but never sent it to underwriting, and again, it likely could be made, but the borrower "withdraws". I always tell the loan officers that you can't code it as "withdrawn" if there's a credit report in file, but am I being too strict? Thanks for your thoughts, these are the situations that give me the most grief!

But Dan - how about this situation that I have here where an AAN was sent. We have so many loans that were canceled as withdrawn that should have been denied. So they have AANs (for the withdrawn code which I know isn't necessary) but for the wrong reason (although according to our system they are all right). I am just so frustrated right now. Do I send all these loans back to the underwriters and make them deny the loans the way they should have in the beginning, and then make them send the appropriate AANs? Or do we just leave things as they are since, after all, the borrowers did get an AAN?

"Or go with the loan officer and call it a prequal request and the borrower never "applied", and not have it be subject to Reg B or HMDA? "

Correct me if I'm wrong, but aren't prequalifications also subject to AAN requirements of Reg B? Even if a request is not HMDA reportable, we still send AAN per Reg B on all denied prequal requests.

Someone Else - sending an AAN with inappropriate reasons is a violation within itself. I have seen banks criticized for doing this and being required to re-send the AAN with the correct reason(s). The most common one is denying for insufficient or value of collateral when the applicant applied for unsecured credit.

If a denial decision had been made on these loans, then an appropriate AAN should be sent. An application can only be withdrawn by the applicant before a credit decision has been made, notice I said made, not communicated. I could tell you that I can't make your loan unless you do this or that - I've denied your original loan request - but you don't want to do this or that and just say forget it I withdraw my request. Well I've still denied your original request and I owe you an AAN.

Anon - you are correct. If you deny a pre-qualification request it is subject to the AAN requirements.

Ok, I completely agree that if you deny a pre-qual or loan request, it needs AAN. But, I have found numerous cancelled files that never went to underwriting, mostly because the borrower either went somewhere else, or decided there wasn't enough benefit to refinancing. The loan officer took enough information to pull a credit report (at the borrowers request) and it was not negative.

So here's where I struggle, since the loan officers never sent a "Incomplete Notice" requesting the items that would be needed to get the loan approved, can we consider this either 1) an application withdrawn, or 2) a prequal request withdrawn? Or said another way, would examiners allow us to consider a loan a prequal request even if we pull credit? (Thus eliminating the need to send an Incomplete Notice, only needing to send AAN when applicable.)

My questions are:

Are these actually pre-qualification requests - did the applicant specifically ask you to pre-qualify them for a loan? Or, is what you are calling a pre-qualification is pulling enough information to see if the applications warrants to send on to underwriting? The second scenario is not a pre-qualification request, and if you are considering them as pre-quals, then as I said earlier you are playing the compliance version of Russian roulette.