From the HMDA Q&A at FFIEC.gov
Preapproval request approved and accepted, but loan not originated.
How should a lender report a preapproval request it has approved where the borrower subsequently identified a property to the lender but a loan was not originated?
Answer: When a borrower who has received a written commitment in response to a preapproval request identifies a property to the lender but the loan fails to originate, in the "type of action" field the lender must record the reason for the failure of the loan to originate --- whether the reason is that the application was later withdrawn, was denied at a later stage, was determined later to be incomplete, or was approved but not accepted. Neither code '7' ("preapproval request denied") nor code '8' ("preapproval request approved but not accepted") should be used, as the application has passed the preapproval stage. In the "request for preapproval" field, code '1' (preapproval was requested) must be used. See Appendix A, I.A.8. & I.B.1.
For example: (1) an applicant submits a request for approval, (2) the request is granted in the form of a written commitment containing only the conditions specified in the regulation, (3) the applicant identifies a property, (4) the appraisal is less than the borrower anticipated and the lender is not willing to lend the amount stated in the commitment letter, and (5) the lender counteroffers with a lower loan amount but the borrower does not accept. In these circumstances, the lender would use code '3' in the "type of action" field ("application denied by financial institution") and code '1' in the "request for preapproval" field ("preapproval was requested").
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If they started to move forward with you at all I would follow the FAQ.