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#1359187 - 03/17/10 05:41 PM
Re: When does pre-qual = application?
M Cockrell
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Power Poster
Joined: Feb 2005
Posts: 6,559
Foxboro
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There are 6 triggers for a GFE to be issued:
-name -social -property addresss -monthly income- -house value or best estimate -amount of loan
A lender can require other items, but can not hold up issuing a GFE by requesting verification docs. For example, while providing the above to the LO, I say I make 4,000 per month. The LO can not require I submit a paystub to verify that in order for me to get a GFE. If any of the above info is found to be different during the verification process later, it would constitute a change of circumstance and a new GFE could be issued accordingly.
I am curious to know the concern about issuing a GFE without a "signed contract"
Last edited by Sox in 07; 03/17/10 05:43 PM.
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#1359216 - 03/17/10 06:04 PM
Re: When does pre-qual = application?
Brock
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Platinum Poster
Joined: Dec 2005
Posts: 553
USA
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In response to Dan's comment regarding the definition of application, my counter argument is that we are not prepared to make a credit decision until there is a contract. To counter that, you could make the decision without the purchase contract. But you would want to have that to close the loan. I do think you make a good point though that many people overlook. The term credit decision that is used in Reg. B is not referring to a firm offer of approval, it means a "preliminary" credit decision. IE, in your own mind could you offer a decision. Here is Reg. B's definition of completed application: A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested As you can see from the definition, it does not say makes firm approval.
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#1359223 - 03/17/10 06:11 PM
Re: When does pre-qual = application?
Brock
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Power Poster
Joined: Feb 2005
Posts: 6,559
Foxboro
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My concern is that we then end up potentially issuing up to five or six GFEs on every single file and each is subject to tolerance and human error. The fewer GFEs we provide the less risk of screwing something up the way I see it. And if you think people can't screw up, you haven't been addressing issues regarding the GFE for the past three months.
In response to Dan's comment regarding the definition of application, my counter argument is that we are not prepared to make a credit decision until there is a contract. I argue that we cannot know any of the information needed to make the decision until the contract is executed. Until the contract is executed everything is hypothetical. We may tell someone that we think their best chance to be approved for the loan is if the loan amount is below x amount or if they can bring in x amount as a down payment, but we cannot make an actual decision until they have a executed contract and a purchase price. Unfortunately, there are a million potential changes that will require revised GFE's. Trust me, I have been living and breathing these RESPA changes for months and am fully aware of the potential violations and headaches from having to redisclose mulitple time. The credit decision is different than the triggers for a GFE. If I tell you the price is 200k but later you determine the price is 400k and I don't qualify, then I get denied. That still doesn't preclude me from getting a GFE from you and if I have provided you innaccurate information, you can send me a new GFE.
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#1359253 - 03/17/10 06:38 PM
Re: When does pre-qual = application?
Brock
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Diamond Poster
Joined: Jan 2003
Posts: 1,058
Dallas, TX
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My concern is that we then end up potentially issuing up to five or six GFEs on every single file... Your concern is noted, however, it's irrelevant. RESPA does not provide lenders with the luxury of providing a GFE based on a "limit one per person" mentality. § 3500.7(a)(1) says, "Except as otherwise provided in paragraphs (a), (b), or (h) of this section, not later than 3 business days after a lender receives an application, or information sufficient to complete an application, the lender must provide the applicant with a GFE. It's submitting an app in "anticipation of a credit decision," not the actual credit decision being made. You don't necessarily have to make a credit decision in order to issue a GFE. So, unless I'm missing something else (which is ALWAYS possible), it does NOT matter how many times a potential borrower applies. You MUST issue a GFE (not withstanding exceptions) for each & every app you receive.
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#1359282 - 03/17/10 07:04 PM
Re: When does pre-qual = application?
Truffle Royale
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Platinum Poster
Joined: Dec 2005
Posts: 553
USA
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The thing is that we don't have an application until there is sufficient information to provide a credit decision. Give me a credit score, income and a requested amount and I can make a preliminary credit decision on anything. Let me ask you this. If someone comes in and says, I am bankrupt, no job, and never pay my bills, can I have $500,000? Do you really need a purchase agreement for you to make your credit decision?
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#1359288 - 03/17/10 07:09 PM
Re: When does pre-qual = application?
Brock
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Power Poster
Joined: Apr 2005
Posts: 3,663
TN
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The distinction here is small, but very important. RESPA says that we have a completed application once we have all six pieces information or any other information the institution deems necessary. I am saying that if the institution deems a contract necessary to make a credit decision, then we require seven pieces of information to have a completed application. At this point, I think your best bet to get a ruling on this would be to call your regulator and ask them if requiring the borrower to have an executed sales contract (not providing to the lender) would be okay to include in your list of things needed to be considered an application. Or better yet, submit the question to HUD directly, since it's their regulation. Brock, I think you will find that most posters here share the same opinion that the sales contract is a verification document and not necessary to make a credit decision. As I said earlier, it is a risk decision for your institution as to what you want to add to the 6 pieces of information to constitute a RESPA application. If your institution chooses to add to the list of 6, I would document the reasoning in detail as to why it was determined to be absolutely necessary to make a credit decision and pray that the regulators come to your side of the reasoning. I, for one, believe that in this environment, any bank would be hard pressed to add to the list of 6 and come out of an exam unscathed.
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#1359291 - 03/17/10 07:11 PM
Re: When does pre-qual = application?
Brock
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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Do you require a contract on a refinance? Please tell me...what IS the difference, really? There's no guarantee on how much they owe or how much it's worth at the point of "application" now, is there? (playing Devil's advocate here)
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#1359313 - 03/17/10 07:26 PM
Re: When does pre-qual = application?
Brock
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Diamond Poster
Joined: Jan 2003
Posts: 1,058
Dallas, TX
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The thing is that we don't have an application until there is sufficient information to provide a credit decision. From my reading of RESPA's definition of an application (i.e. "the submission of a borrower's financial information in anticipation of a credit decision..."), it's the applicant who's anticipating a credit decision; it's not the lender necessarily being able to make a decision (that's where Reg B comes in). In other words, lenders aren't expected to make a credit decision within the 3-business day time-frame. However, they are expected, nay required (always wanted to use the word "nay" in a posting), to provide the applicant with an "estimate" of costs, so the applicant, in turn, can decide whether to proceed or not. RESPA requires an "estimate" of cost be offered whether or not the lender can make a credit decision; Reg B allows the lender to obtain enough information before having to actually make that decision.
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"Remember no man is a failure who has friends." - Clarence (the Angel) Oddbody - It's a Wonderful Life
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#1359371 - 03/17/10 08:18 PM
Re: When does pre-qual = application?
Brock
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Platinum Poster
Joined: Dec 2005
Posts: 553
USA
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Brock, to note that you said you would require one to issue a GFE. David Friend did not say you could require one, he said you could ask the question. I think this supports our assertion more than you think. I am not going to speak for Mr. Friend, but nothing he says contridicts anything I believed previous to this thread or stated in this thread.
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#1359377 - 03/17/10 08:23 PM
Re: When does pre-qual = application?
M Cockrell
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10K Club
Joined: Aug 2002
Posts: 47,681
Bloomington, IN
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If you need the sales contract to verify the terms of the sale to make a credit decision, then you would not also need all of the following to make your credit decision? Appraisal to verify LTV Title work to verify how title is held and not outstanding issues W-2, Pay stubs and/or tax returns to verify income Homeowners insurance to verify the collateral is covered There is no way that you will convince me that any lender or loan officer that has any idea how to review and analyze credit needs a sales contract to make a credit decision. A credit decision is saying no we won't make the loan as applied for, or we will make the loan as applied for subject to the verification of the value, clear title, sales terms, income, deposit reserves, etc. Pray that the next time I visit my relatives in Lee's Summit and Springfield I don't stop in Columbia and shop your bank. BTW - Go Tigers!!! I still watch all of their football and basketball games that I can.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1359385 - 03/17/10 08:26 PM
Re: When does pre-qual = application?
Brock
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Power Poster
Joined: Nov 2008
Posts: 4,132
Somewhere in the middle
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Brock, You can request more information than the six pieces expressly listed in the definition of ‘application’ under RESPA; you cannot require that verification documentation of the information be provided before the GFE is issued to the borrower.
David L. Friend, Esq. Office of RESPA and Interstate Land Sales Department of Housing and Urban Development
To echo what CompDat is saying, I think what Mr Friend is saying in his phrase after the " ; " that you cannot ask verification documents (Your requested purchase contract). JMHO But then again you are in MO, the "show me" state
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#1359401 - 03/17/10 08:36 PM
Re: When does pre-qual = application?
Brock
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10K Club
Joined: Aug 2002
Posts: 47,681
Bloomington, IN
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Brock, let me ask you this and then I am going to step away from this discussion.
If I apply to purchase a new primary dwelling (but I haven't decided what property I'm going to purchase yet) secured by my existing dwelling on a long term note would you not provide me a GFE because I don't have an executed sales contract on the property I'm going to buy?
If you would then explain to me the difference, because although I'm not using the new property (heck it's not even been identified yet) to secure the loan the sales contract would still verify the terms of the loan I'm applying for.
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The opinions expressed are mine and they are not to be taken as legal advice.
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#1359431 - 03/17/10 08:52 PM
Re: When does pre-qual = application?
Brock
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Power Poster
Joined: Apr 2005
Posts: 3,663
TN
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Obtaining a property address is not a changed circumstance if you issue the GFE without any property address being given/identified (ie-if I don't list it on my application).
If I list it on my application even though I have not executed a sales contract, I have still identified a property. So you issue me a GFE and I come back in a tell you that I found a different property and give you that address and a different loan amount (maybe the new house costs more), you can treat that as a changed circumstance and re-issue a GFE.
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I can't herd the cats anymore, so I just set up the electric fences and let them fry when they stray out of bounds.
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#1359445 - 03/17/10 09:01 PM
Re: When does pre-qual = application?
Brock
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10K Club
Joined: Aug 2002
Posts: 47,681
Bloomington, IN
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I think we would view that as a refinance transaction, So you're saying you CAN make a credit decision without a sales contract??? And as Dani said if the property address changes from the one identified then you have a changed cicumstance. It's MILLER time!!!
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The opinions expressed are mine and they are not to be taken as legal advice.
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