Let's say we have a home purchase pre-approval situation.

Scenario #1: Credit is pulled and based on credit the request is denied before a property is located.

Scenario #2: Pre-approval is approved. Property is located but let's say it doesn't qualify because it doesn't appraise.

How is the LAR completed?
Scenario #1 - Pre-approval Requested - Code 1 (yes) and Action Taken Code 3 (denied)
Scenario #2 - Pre-approval Requested - Code 1 (yes) and Action Taken Code 7 (Pre-approval denied by financial institution)

Is that correct? Thanks for helping my head stop spinning!

My thought as to which Action Taken code to use deals with when property is identified. I set up the scenarios as I did because (as I see it) a pre-approval without a property is a denial (code 3). A pre-approval denial with a property is a Pre-approval requested but then denied (Code 7). Does that sway you one way or the other? I believe that David D. and GreatBlue are debating this in thread also.

Wow - deep discussion. Real head-twister.

I guess I look at this as two separate questions. First, was a preapproval requested or not (or don't you even have a program)? This will drive code 1, 2, or 3 for the preapproval piece.

Next, what was the final outcome, and when in the process did it happen? In looking at the sample LAR that's been floating around, it appears that you can have either a 1/7 or a 1/3 scenario. How do we differentiate them? My point of view is, if they asked for preapproval and we said "no" to that request, pick the 1/7 combination. We never get to the property address piece.

If they asked for preapproval & later came back with a property address, and then we said "no", pick the 1/3 combination and report the property address/census tract info.

All I'm trying to do here is make sense of the examples that have been previously published. David & GreatBlue make the case that this can be interpreted in multiple ways. I really wish we could get our hands on a new "Getting it Right" - especially since I'm doing 4 training sessions beginning on the 15th...

The previously referenced discussion is still in progress, and I know we haven't heard the last from David yet, but FWIW, I agree with Bartman on this one. I base my thinking on this: Was the loan application denied? (use action code 3) or was the request for preapproval denied? (use action code 7).

I would use code 7 anytime the preapproval request itself (and not the subsequent true application) was denied.

ok...from the St. Louis Fed website - check out the LAR they have completed there at this link . In the example of pre-approval request denied, the denial codes are 1,3 (debt to income ratio and credit history). This to me indicates that it is before a property is located; they use a code 1 in pre-approval and code 8 in action taken. In the next example down, the example is of action denied after pre-approval, the denial codes are 4,5 (collateral and cash flow). This to me indicates that the it is after the property is located; they use a code 1 pre-approval and code 3 action taken. Which makes all of the what we've been talking about incorrect??? I can't believe that I'm still working on this at 3:30 on a Friday.

Thanks for posting that link to the example LAR. I think it's a somewhat misleading example, because the 2nd entry should really be action taken code 7. (It was denied.)

Nevertheless, I think it supports what I'm trying to say. Instead of focusing on denial reasons, look at what they listed in the property section. The 1/7 (or 8 in this example) has census tract NA. The 1/3 combination has an actual tract. That says to me that denial occurred after the property was identified.

I'd suggest that the rule of thumb for action taken 7 or 8 is to use them prior to property identification & full-blown underwriting. If you say no to their preapproval request based on an initial review of the credit report or income, those codes would be appropriate. If your "no" is a result of underwriting plus collateral analysis, action taken is code 3 - and then you need to review the file for evidence of preapproval activity (which ought to be in writing...)

Now that code 7 pre-approval denial code makes more sense than the 8 code. Thanks for listening and I think I've got a grip on this...that is until tomorrow

David posted a reply recently in the other thread, here. Looks good to me!

Thanks for the update!