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#1359187 - 03/17/10 05:41 PM Re: When does pre-qual = application? M Cockrell
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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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#1359205 - 03/17/10 05:52 PM Re: When does pre-qual = application? TB 12
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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.

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#1359216 - 03/17/10 06:04 PM Re: When does pre-qual = application? Brock
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Originally Posted By: Brock
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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Originally Posted By: Brock
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
M Cockrell Offline
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Originally Posted By: Brock
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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#1359262 - 03/17/10 06:50 PM Re: When does pre-qual = application? Brock
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Unless I'm missing something, how/why would you end up issuing five or six GFEs on A file? You issue the GFE. If you have a changed circumstance, you issue a revised GFE. You don't go back to square one. All the original tolerances are still in place except for those the changed circumstance effects.

When you have an application that addresses all six of the RESPA points, you have an identified property with at least the listed sale price known. If the final contract comes in higher or lower or the loan amount changes, you're back to the changed circumstance.

Brock, I don't think this is a debateable topic. RESPA says the purchase contract is a verification document and you simply cannot require knowledge of a final contract prior to issuing a GFE.

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#1359269 - 03/17/10 06:55 PM Re: When does pre-qual = application? M Cockrell
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The thing is that we don't have an application until there is sufficient information to provide a credit decision. I am saying that a lender may say they don't have sufficient information to make a credit decision and therefore do not have a completed application until the borrower says they have an executed contract. I totally agree with everything that everyone is saying about having to issue a GFE within three days of application. What I am saying is that just because the individual has answered all the questions on the 1003 does not necessarily mean we have a completed application for purposes of RESPA.

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.

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#1359279 - 03/17/10 07:01 PM Re: When does pre-qual = application? Brock
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Same lender is going to tell you they can't make a credit decision without the appraisal verifying the house is worth what the contract verifies the borrower said he will be pay for it.

And on that I'll bow out now happy that I'm not going to try to debate this issue with my Fed examiners 'cause I'm 100% sure I'd loose.

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#1359282 - 03/17/10 07:04 PM Re: When does pre-qual = application? Truffle Royale
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Originally Posted By: Brock
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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#1359284 - 03/17/10 07:04 PM Re: When does pre-qual = application? Truffle Royale
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I totally understand your position Truffle. Have your examiners given you an answer on this specific issue?

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#1359288 - 03/17/10 07:09 PM Re: When does pre-qual = application? Brock
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Originally Posted By: Brock
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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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) grin
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#1359296 - 03/17/10 07:14 PM Re: When does pre-qual = application? Brock
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Compdat I agree that there is a contradition between the requirements of reg B and RESPA. You are addressing factors that totally exlude the person from certain loan progams. I consider the RESPA credit decision section to be more narrowly focused on someone that at first glance is not excluded from the particular program. We do send a denial letter to those people, but we would not include them in our list of denied persons for our HMDA report.

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#1359311 - 03/17/10 07:23 PM Re: When does pre-qual = application? Brock
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Whoa...back up the train. If you have an application and you issue a denial it's HMDA reportable. Period. Don't know how you come up with exclusion from a program being non-HMDA reportable.

Sorry. Not commenting on the purchase contract thing anymore like I promised but HMDA is a different issue.

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#1359313 - 03/17/10 07:26 PM Re: When does pre-qual = application? Brock
M Cockrell Offline
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Originally Posted By: Brock
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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#1359366 - 03/17/10 08:11 PM Re: When does pre-qual = application? M Cockrell
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Here is the answer I received from HUD regarding this issue. I don't necessarily think that this proves my position, but I do think that it supports it if only indirectly. I specifically asked if we could ask whether the person has entered into a contract and Mr. Friend did not say no. I know this is not definative, but I think it demonstrates that this is a potentially acceptable practice. Clearly if I asked the question to HUD again I might get a different response.

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


From: Brock
Sent: Wednesday, March 17, 2010 3:45 PM
To: HSG-RESPA
Subject: Application?

I have a question regarding the RESPA definition of application. I know that the regulations state that there are six pieces of information that constitute a completed application. We would like ask for one additional piece of information as contemplated by the regs. We would like to ask the borrower whether or not they have executed a contract on purchase transactions prior to considering the application complete and submitting the GFE to the borrower. I know that the regs state that we cannot ask for verification documentation and so we would not require that the borrower produce the physical contract. We just want to know that a contract has been entered into. Would this practice be permissible in HUD’s view?

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#1359371 - 03/17/10 08:18 PM Re: When does pre-qual = application? Brock
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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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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. smile smile wink

BTW - Go Tigers!!! I still watch all of their football and basketball games that I can.
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#1359385 - 03/17/10 08:26 PM Re: When does pre-qual = application? Brock
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Somewhere in the middle
Originally Posted By: Brock


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 laugh
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#1359394 - 03/17/10 08:32 PM Re: When does pre-qual = application? Dan Persfull
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Like I said, I don't believe this answer from HUD answers the question, but if I would have asked that same question to one of you guys (and I did) I know that I would not have gotten as favorable of a response. And I think if I asked HUD if we could wait until the appraisal comes back to issue the GFE they would clearly say no way jose.

And Go Mizzou! I will probably not be posting any comments on Friday from 1:30 to 3:30 as I will be watching my Tigers battle with the Clemson Tigers. Everyone can put their revolvers in their holsters at that time because I won't be posing any rediculous scenarious for everyone to shoot down.

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#1359401 - 03/17/10 08:36 PM Re: When does pre-qual = application? Brock
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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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#1359414 - 03/17/10 08:46 PM Re: When does pre-qual = application? Dan Persfull
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Dan, I think we would view that as a refinance transaction, and honestly I don't think our company would do that type of loan, but I see your point. I don't disagree that in a perfect world we would want to issue a GFE as soon as someone comes in with the six pieces of information in the rule, but HUD put lenders in a real tough spot when they said that obtaining a property address is not considered a change of circustance.

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#1359431 - 03/17/10 08:52 PM Re: When does pre-qual = application? Brock
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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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#1359445 - 03/17/10 09:01 PM Re: When does pre-qual = application? Brock
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Quote:
I think we would view that as a refinance transaction,


So you're saying you CAN make a credit decision without a sales contract??? wink whistle

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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#1359484 - 03/17/10 09:31 PM Re: When does pre-qual = application? Dan Persfull
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Dani did blow up my arguement about obtaining an address not constituting a changed circumstance, but that is the reason that this whole thing is screwing with our processes. I do think it more necessary on a purchase transaction to have the sales contract to make a credit decision than it would be on a refinance for the simple reason that the person has not fully identified the property address. I know I will get crucified for that but that is what it comes down to, making sure the person has settled on this particular property. I suppose I am arguing that the sales contract is necessary to make a credit decision because the sales contract is necessary to fix (not verify) the address. I see that the argument probably has one major hole in that the regs don't say that the borrower has to do more than give the property address to the lender. But it also does not say what it means to have a property address to place on the application. As I said before, I agree that it is safer to just issue the GFE even if the borrower gives you an address of a proeprty they saw online, but I still think there is room for making sure they are committed to this property by asking if the contract is executed.

Sorry to bother you guys all day.

Enjoy some green beer and forget about all this [censored]!!!

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