Hi All,

If the bank issues a conditional approval is that considered a credit decision for HMDA purposes? I am wanting to know if a bank issues a conditional approval can the action taken on the LAR be withdrawn? Why or Why not?

I'm not sure what you mean by "conditional". Please provide details.

I think I know where you're going, so here's my thoughts (if I'm right):

If you issue a GFE/P-TIL (assigning it's subject to RESPA and TIL), you have approved the application. It may not be a "final" approval, but disclosure are to be meaningful and unless there's a changed circumstance, you have to live by what you said. Therefore, it must be approved. If the applicants then later say "Forget it." that would be a code 2 (approved but not accepted). It can't be a Code 4 (application withdrawn - before a decision is made).

Hi David,

That is our issue, we are not sure if a conditional approve means a credit decision is made. By conditional approval I mean, a letter was issued to the customer stating your loan was approved condition on you providing underwriting and/or loan-closing conditions. My auditor is telling me since I do not have a "final" approval the customer can withdraw the loan. Example: The bank issued a conditional approval letter to the loan applicant. The customer decides to not go through with the loan (email from customer withdrawing loan request). Is this coded as withdrawn, approved not excepted, or denied? Remember the conditional approval letter had both loan-closing and underwriting conditions in it.

. . . a letter was issued to the customer stating your loan was approved condition on you providing underwriting and/or loan-closing conditions.
Sounds like an approval to me. Aren't all loans subject to underwriting and other conditions? Would the auditor say no loan gets final approval until the borrower & bank sign the closing documents?

If the auditor disagrees, ask:
1. so once we give final approval, we're stuck with the loan as disclosed even if we learn of some negative information or pull a final credit report and discover information that would otherwise make us deny the customer?

2. We can't ever say "no" if we give final approval?

3. Where "conditional approval" and "final approval" are defined in any regulation.


Sounds like an approval and then the customer didn't accept it - code 2 for HMDA.

Let me start by saying I agree with the outcome of this thread...but where in the world did this come from? Just because a person applies for a loan and you issue early disclosures (due to timing) in no way means it's approved, denied or otherwise.



To take it one step further...approving a loan and approving the terms requested (application) are two different things. For a coding of 'withdrawn' vs 'approved-not accepted' relies on whether or not a credit decision has been made yet.

What she ^^^said. There is no such thing in my world as an 'approved application'.

Just because a person applies for a loan and you issue early disclosures (due to timing) in no way means it's approved, denied or otherwise.
Really. If I deny someone, I issue an AAN and don't issue early disclosures.
If I don't deny someone, I am to issue MEANINGFUL disclosures (PTIL/GFE). If I'm not considering the application to be approved:
1. how are they meaningful?
2. how can you change anything without a changed circumstance?

Now before we go on, please answer those 2 questions and the 3 I asked in my previous post. I'd like to see how others think differently about those questions, so I can address this correctly.

Truffle: You keep bringing this up, but you don't counter anything said with regulatory citations or anything concrete to discuss. You simply use a "crazy" emoticon. I don't know how to respond to you.

As a loan officer, my bank used the term "approved application" all the time. As a consultant for 23 years, that's a frequent term I hear in banks every day. It means the request was not denied, looked favorable and was in process. Verifications were ordered and underwriting was taking place. What do you call that? When do you consider an application to be approved?

Please answer the 5 questions I have asked as well.

David, I have to agree with the others. A customer at that stage has not even given intent to proceed and the bank has not necessarily evaluated the ap. the bank has not seen anything at that point to cause them to deny it but nor have they evaluated much at all. Early disclosures are an "if you continue with us and we agree, here are the costs". The costs are meaningful, but those disclosures are not an approval.

Great. So please answer the questions I've asked. I understand the gray area" here. I've repeatedly asked these questions to be answered so I can see what you call certain things and can then discuss this further.

Concerning the customer giving intent to proceed. You bring up a good point that I'd like to discuss further, but I need to hear your answers to the previous questions before I can. Thanks.

This. Thank you Kathleen for an even different prospective.

Here's another real-world example.

Application is made on terms the bank can provide. Credit is pulled and it looks good, however income has not been verified and lets say some other issue will require it to go to loan committee for approval (or not). Loan committee meets weekly and you missed this weeks by one day. Early disclosures must go out. [I've made no comment on conditional, final or approval of the loan in any way, if I did, it would end up approved-not accepted (I'm not considering issues that could change it to a denial)].

Customer calls between issuance of early disclosure and loan committee and changes their mind. This loan was withdrawn...no credit decision has been made.

I can produce meaningful disclosure all day long with nothing but an application and instructions from the MLO (so I know if it's a purchase, or a refi). They have no bearing on approval and won't require any changes. I don't risk-base price, my fees are based on the requested loan amount so yes...they are meaningful from day 1 whether I get around to making a decision that day or day 10.

If the auditor disagrees, ask:
1. so once we give final approval, we're stuck with the loan as disclosed even if we learn of some negative information or pull a final credit report and discover information that would otherwise make us deny the customer?

No, if something happens to change from a conditional approval to denial, you can deny the loan. If the customer changes their mind post-conditional or final approval, the loan will be approved-not accepted

2. We can't ever say "no" if we give final approval?
Sure you can. What does this have to do with withdrawn vs approved-not accepted? (I may be missing something from the original question and if so, please forgive me

3. Where "conditional approval" and "final approval" are defined in any regulation.

No where...it's man-made. Any approval implied would end up either 1) approved - not accepted or 2) denied

If I don't deny someone, I am to issue MEANINGFUL disclosures (PTIL/GFE). If I'm not considering the application to be approved:
1. how are they meaningful? Unless you RBP, it shouldn't really matter. If you DO RBP, I'd hope you didn't offer any lock yet!
2. how can you change anything without a changed circumstance Why should you need to?

Let me also say (again) that I DO agree with the outcome of this particular thread (prior additional discussion). Cedar Point Guy's auditor is wrong. They issued some form of approval, so the customer has missed any boat to withdraw the loan.

For HMDA it will be ANA.

(just clarifying that I do agree with that)

Thanks Joker. I want to clarify : I'm not saying a bank must make a loan just because they issued early disclosures. Disclosures are not commitments. But they must be meaningful.

To address your first reply about the loan committee meeting later:

Is it okay for a bank to issue early disclosures ("meaningful”) and then later come back and say, “we need to charge you more interest, fees, etc."? Or “we decided we can’t do it.” even though nothing has changed and no negative verifications have been found? If the borrower inquired to this and said “What changed?” would the bank have the right to say “Nothing. We just didn’t fully look at what you were asking for and the info you provided. Once we did, we decided we couldn’t do it as presented.” If that could happen, how would the bank be able to say the early disclosures were meaningful?

Since the early disclosures have to be meaningful, the regulatory requirements force the bank to issue some underwriting/preliminary decisions BEFORE issuing early disclosures. If a bank has done that and issues early disclosures, they have “approved” the applicant. Sure they can deny it if verifications come in proving what was already relied upon wasn’t correct.

If the auditor disagrees, ask:
1. so once we give final approval, we're stuck with the loan as disclosed even if we learn of some negative information or pull a final credit report and discover information that would otherwise make us deny the customer?

No, if something happens to change from a conditional approval to denial, you can deny the loan. If the customer changes their mind post-conditional or final approval, the loan will be approved-not accepted

I agree. I was trying to get the auditor to tell us how they define "conditional" approval from "final" approval. Is it conditional until the moment of closing?

2. We can't ever say "no" if we give final approval?
Sure you can. What does this have to do with withdrawn vs approved-not accepted? (I may be missing something from the original question and if so, please forgive me
I agree. It has nothing to do with withdrawn vs. approved-not accepted. I'm "blowing up" the concept of "conditional" vs. "final" approval (different issue).

3. Where "conditional approval" and "final approval" are defined in any regulation.

No where...it's man-made. Any approval implied would end up either 1) approved - not accepted or 2) denied
I agree.



If I don't deny someone, I am to issue MEANINGFUL disclosures (PTIL/GFE). If I'm not considering the application to be approved:
1. how are they meaningful? Unless you RBP, it shouldn't really matter. If you DO RBP, I'd hope you didn't offer any lock yet!

2. how can you change anything without a changed circumstance Why should you need to?
My point of #2 here is some are saying a preliminary/conditional approval could later be denied or other terms could be applied. You even say that in the post about the loan committee meeting after early disclosures are delivered. What if the loan committee decides they want to charge a higher rate, more fees, etc. How can they if there's no changed circumstance. THIS is the crutch of my whole point.

David, seeing as how, up to this point, that was my only post in this thread, I don't see where I keep bringing anything up. fwiw, you left out the important part of my post. I was agreeing with the points Joker made so I felt no need to add more words. Besides, when I'm at work, my time on the threads is limited. I'm answering you now on my own dime and time.

As for regulatory citations, there are none as you admitted above.

To speak to the crux of your point, and in the HMDA forum in particular, I think you're muddling the process by using the word 'approved' with regard to anything that happens prior to giving disclosures, getting intent and underwriting the loan.

Real world scenario for me is an application is taken based on a floating rate, with the assumption that the information given will check out. The prices given in the disclosure are meaningful based on the information available at the time of disclosure. From there, I believe this FAQ to be in effect:
GFE – “Changed circumstances”
1) Q: Once a GFE is issued are there any circumstances under which the loan terms or charges can change?
A: Yes. The loan terms or charges can change in the event that there are changed circumstances. ―Changed circumstances‖ is now defined in § 3500.2 as: (1) Acts of God, war, disaster, or other emergency; (2) Information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided, which information may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE; (3) New information particular to the borrower or transaction that was not relied on in providing the GFE; or (4) Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems.

As to your opinion that the GFE is some sort of approved application, I offer the following:

9) Q: Is a GFE a loan commitment?
A: No, the GFE is not a loan commitment. A GFE is an estimate of settlement charges a borrower is likely to incur to obtain a specific loan.

I don't expect you to agree with me. It's obvious I'm not the only one disagreeing with you here. You've introduced a concept that has taken many of us by surprise. I hope I've now spoken satisfactorily to your points, even tho I didn't answer the five questions per se.

I'm not sure how the "conditional approval" question morphed into a discussion of Early Disclosures. IMHO they are separate issues and how the "conditional approval" is reported for HMDA purposes has absolutely nothing to do with whether early disclosures were issued.

The HMDA FAQs IMO adequately discuss conditional approvals and how they should be reported based on the conditions and whether the conditions were met.

http://www.ffiec.gov/hmda/faqreg.htm

This is interesting and, admittedly, it's even a debated discussion within our Team.
Truffle: My comment about you continuing to bring this up stems back to 2 previous posts that are closely related:
http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1995600#Post1995600

http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=2001510&page=1

BTW, ALL of my posts are on my dime.

I'm also very interested in hearing your reply to my 5 questions. These are key to this entire concept. Let me copy/paste and renumber them so you (and others) can more easily reply:
-----------------------------------------------------------------------------------------

Aren't all loans subject to underwriting and other conditions? Would the auditor say no loan gets final approval until the borrower & bank sign the closing documents?

If the auditor disagrees, ask:
1. so once we give final approval, we're stuck with the loan as disclosed even if we learn of some negative information or pull a final credit report and discover information that would otherwise make us deny the customer?

2. We can't ever say "no" if we give final approval?

3. Where are "conditional approval" and "final approval" defined in any regulation.

If I deny someone, I issue an AAN and don't issue early disclosures.
If I don't deny someone, I am to issue MEANINGFUL disclosures (PTIL/GFE). If I'm not considering the application to be approved:
4. how are they meaningful?
5. how can you change anything without a changed circumstance?

I'm not sure why everyone (except Joker) is reluctant to answer these questions.

My point is to differentiate between "approved" and "committed". I hear you (and a few others) saying "we don't approve when we issue early disclosures." I do believe a bank has approved a loan if they issue early disclosures. Thus, if early disclosures are delivered and then the applicant decides not to proceed, the action code is "approved but not accepted". That's exactly what this string is about. Please go back and read my first post in this string (2nd from the top). That's what I said then and just repeated. Joker also agrees with this.

AFTER receiving Intent to Proceed, the bank begins to verify and, if they learn anything different than what was stated and known, they can always deny or counter-offer. But if you issue disclosures, you must live by them. Otherwise, the disclosures aren't meaningful.


I'm not saying the bank is committed. The lender has 3 business days from application to make a “preliminary" determination (approval), based on the information at hand, whether they believe they “could/may" offer the credit requested and issue a GFE of meaningful charges and terms related to the type of credit requested. Issuing the GFE does not require the lender to make the loan. Only the rate and any rate dependent charges may change, depending on the date the disclosed rate was available through (assuming the rate was not locked at the time the GFE was issued). Any other disclosed charges not dependent on the rate “must" be honored for 10 business days, unless there is a changed circumstance. A later meeting loan committee (or anyone else) cannot change these charges without a specific changed circumstance.

Sorry, David. Time only allows me to say I totally disagree with your stance on this issue. After protracted discussion with my regulator and examiners to establish when to use what action code, approved but not accepted will ONLY be used on my LAR after a loan has been underwritten and the borrower elects not to proceed to closing.

Dan: Hopefully my last 2 responses help you understand how this "conditional approval" morphed into early disclosures. I see these as the same concept. I believe there is a correlation between issuing early disclosures and a bank saying an application was approved or not.

I'm also using the HMDA FAQs to support my position. Specifically:
Conditional approvals---failure to satisfy creditworthiness conditions. How should a lender code "action taken" where the borrower does not satisfy conditions concerning creditworthiness?
Answer: If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn." That code is not otherwise available.
What the HMDA FAQs do address are scenarios where the file is closed for incompleteness because the application doesn't later cooperate.

Agree?

So I beg to ask Truffle, how do you comply with this HMDA FAQ?
Conditional approvals---customary loan-commitment or loan-closing conditions. The commentary indicates that an institution reports a "denial" if an institution approves a loan subject to underwriting conditions (other than customary loan-commitment or loan-closing conditions) and the applicant does not meet them. See comment 4(a)(8)-4. What are customary loan-commitment or loan-closing conditions?
Answer: Customary loan-commitment or loan-closing conditions include clear-title requirements, acceptable property survey, acceptable title insurance binder, clear termite inspection, and, where the applicant plans to use the proceeds from the sale of one home to purchase another, a settlement statement showing adequate proceeds from the sale. See comments 2(b)-3 and 4(a)(8)-4. An applicant's failure to meet one of those conditions, or an analogous condition, causes the application to be coded "approved but not accepted." Customary loan-commitment and loan-closing conditions do not include (1) conditions that constitute a counter-offer, such as a demand for a higher down-payment; (2) underwriting conditions concerning the borrower's creditworthiness, including satisfactory debt-to-income and loan-to-value ratios; or (3) verification or confirmation, in whatever form the lender ordinarily requires, that the borrower meets underwriting conditions concerning borrower creditworthiness.

Please respond more when you have more time.

P.S. This isn't a "fight". This is a good discussion that I humbly admit is a tough one for me and our Team. We're combining TIL/RESPA, Reg B & Reg C into one. Recently, we've had several client banks get cited for HMDA coding errors. In short, the banks were told if the bank issued early disclosures, they could not use #4 (withdrawn before decision was made). I don't disagree.

Since the early disclosures have to be meaningful, the regulatory requirements force the bank to issue some underwriting/preliminary decisions BEFORE issuing early disclosures.

What is the basis for this opinion either in 1024.7 or Appendix C?

I agree the GFE must be made in "good faith" based on the information known at the time the GFE is prepared. I do not agree that 1024.7 or Appendix C forces an institution to perform some sort of underwriting/preliminary decision prior to issuing the GFE. In fact all guidance to date specifically prohibits the institution from requiring verification documentation as a condition of issuing the GFE.

In my brief reading of this thread I still do not see the correlation between the GFE and whether the loan request is approved, denied, countered, withdrawn or approved but not accepted.

If one is suggesting that the issuance of the GFE has a direct correlation to the credit decision then how are the financial institutions that issue GFEs on-line based on the information the consumer inputs to the on-line application to proceed? Do they now automatically have "conditional" approvals because they issue the GFE?

Thanks Dan. Let me address each of your points:

If you read pages 68211 and 68212 of the Federal Register, (HUD's issuance of RESPA on 11/17/2008), you'll see the following:
http://www.gpo.gov/fdsys/pkg/FR-2008-11-17/pdf/E8-27070.pdf

Under this approach, at the time of application, the loan originator will decide what application information it needs to collect from a borrower, and which of that collected application information it will use, in order to issue a meaningful GFE. However, before providing the GFE, the loan originator will be assumed to have collected at least the following six items of information: . . ..

In order to prevent overburdensome 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.

Once the applicant submits to the loan originator all the mortgage application information deemed necessary by the loan originator to process the GFE, the originator will be required to deliver or mail a GFE to the applicant within 3 business days.

None of the information collected by the originator prior to issuing the GFE may later become the basis for a ‘‘changed circumstance’’ upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE.

. . . .

Furthermore, the loan originator is presumed to have relied on the borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator before providing the GFE. The loan originator cannot base a revision of the GFE on this information, unless it changes or is later found to be inaccurate. HUD determined that this approach provides the flexibility originators need to properly underwrite, while limiting bait-and-switch methods whereby the originator uses the GFE to draw in a borrower and, after a significant application fee is paid or burdensome documentation demands are made, claims that a material change has resulted in a more expensive loan offering.

I do think RESPA requires some underwriting/preliminary decision. How else would the GFE be MEANINGFUL and how could the bank later say "Oh wait. We can't offer you what we said in our GFE" unless some sort of underwriting/preliminary decision was completed based on the information presented?

From page 28281 of the same FR:
In response, HUD has adopted a single application process for the final rule. Under this approach, at the time of application, the loan originator will decide what application information it needs to collect from a borrower, and which of that collected application information it will use, in order to issue a meaningful GFE. HUD strongly urges loan originators to develop consistent policies or procedures concerning what information it will require to minimize delays in issuing GFEs.


IF I'm right that there is some underwriting/preliminary decision, the correlation is some banks are trying to say that even though they have issued a GFE, they haven't made a decision. If the applicants then pulls out, these bankers want to call this a HMDA Action Code #4 (Withdrawn) rather than Code #2 (Approved but not accepted). This has been an issue with several of our clients recently and caused me to look at this whole process (RESPA, TIL, Reg B and Reg C) together.


From page 68212 of the same FR quoted earlier:
None of the information collected by the originator prior to issuing the GFE may later become the basis for a ‘‘changed circumstance’’ upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE. A loan originator would have the burden of demonstrating nonreliance on the collected information, but may do so by various means, including through, for example, a documented record in the underwriting file or an established policy of relying on a more limited set of information in providing GFEs. If a loan originator issues a revised GFE based on information previously collected in issuing the original GFE and ‘‘changed circumstances,’’ it must document the reasons for issuing the revised GFE, including, for example, its nonreliance on that information or the inaccuracy of the information, and retain that documentation for at least 3 years.

There's LOTS more in this section by section analysis that bears on this topic, but this post is already very lengthy. I encourage everyone to give this a thorough read.

Again, good discussion.

OK. This conversation has gotten complicated. Let me try to simply my position and see if we can stick to the root issue.

The original post was about action codes for HMDA when a "conditional approval" was given. I replied (with some new modifications to clarify):
If you issue a GFE/P-TIL (assuming it's subject to RESPA and TIL), I believe you have given a level of approval to the application. It may not be a "final" approval, but disclosure are to be meaningful and unless there's a changed circumstance, you have to live by what you said. If the applicants then later say "Forget it." that would be a code 2 (approved but not accepted). It can't be a Code 4 (application withdrawn - before a decision is made).

I believe this is supported by the HMDA FAQs (http://www.ffiec.gov/hmda/faqreg.htm#action) where it states:
Conditional approvals---failure to satisfy creditworthiness conditions. How should a lender code "action taken" where the borrower does not satisfy conditions concerning creditworthiness?
Answer: If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn." That code is not otherwise available.

I firmly believe if a bank has issued GFE/P-TIL disclosures, they have made a preliminary decision and cannot use code 4 - application withdrawn. Therefore, Code 2 (approved but not accepted) is used when an application is withdrawn after the initial approval is given (based on unverified information). This code would also be used if a bank issues a GFE and the borrower does not give Intent to Proceed or if approval is communicated and the bank doesn't hear from the applicant for 30 days.

I see that Joker agrees with the HMDA action codes I state (or I think so), but yet there appears to be some confusion over other things I presented. Before going on, let me hear feedback on this only. Thanks.