No property identified -- Is the application valid?
by Dan Persfull and Andy Zavoina, BOL Gurus Guru BIOS
Question: This pertains to a single family mortgage that is not exempt. Scenario: a lender takes a pre-app that does not define any particular property, but the lender does run a credit check on the borrower. Question: is the lender required to send any of the disclosures (GFE, etc.)that fall under the 3 day rule?
Answer by Dan Persfull: HUD's Reg. X 3500.2
(b) Other terms. As used in this part:
Application means the submission of a borrower's financial information in anticipation of a credit decision, whether written or computer-generated, relating to a federally related mortgage loan. If the submission does not state or identify a specific property, the submission is an application for a prequalification and not an application for a federally related mortgage loan under this part. The subsequent addition of an identified property to the submission converts the submission to an application for a federally related mortgage loan.
Answer by Andy Zavoina: Without a property, as Dan has noted, you are not obligated to send RESPA disclosures. Reg. Z, at 226.19(a), refers to a loan subject to RESPA. At this point, there is an exemption, and without knowing the property, you could not provide meaningful disclosures anyway as you have no idea yet of any of the terms or conditions of the potential loan.
You do have a permissable business reason to access the credit file by virtue of the inquiry. Just be cautious that you do not ignore the denial requirements of Reg. B in the event that you have sufficient information to deny the loan, regardless of knowing anything about the property. If you saw a terrible credit report and denied the request, you may have an "application" for Reg. B, C (as a preapproval program) and also have FCRA disclosure requirements.
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