We use DU from FNMA for processing our mortgage loans on the Secondary Market. In most cases, we get a reply back of "Approved/Eligible". DU uses information from a tri-merged credit report, stated income, stated value, and few other bits of information to render this decision. We simply verify this information to satisfy the automated underwriting requriements.

The customer, for whatever reason, decided to pull their application before we ordered any appraisal or closing conditioned documents.

Is this considered a withdrawn application or approved not accepted? I had a compliance examiner once tell me that any automated underwriting decision is considered approval and if the loan does not close, it was not accepted. Therefore our loans on the LAR should show "Approved not Accepted. I cannot find anything to support this comment. I'm inclind to report them as withdrawn.

I guess it would depend on your process. After you get an Approved/Eligible, do you need some other type of approval before you would originate the loan?

We consider this a conditional approval. Since there is still information needed to make a final decision (appraisal, verification of income, etc.) and the application could still be denied, I would consider it withdrawn.

This question/statement has come up quite often over the past several weeks and I will once again refer you to the FAQs.

If the applicant chooses not to comply with the conditions placed on the approval then you cannot treat it as a withdrawn.

http://www.ffiec.gov/hmda/faqreg.htm#action


If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn." That code is not otherwise available. See Appendix A, I.B.1.d. If the condition involves submitting additional information about creditworthiness the lender needs to make a credit decision . . .

Dan, I am not trying to argue, I really am trying to understand. I have read the Q&A several times and I'm obviously not understanding them the same way you are. I guess I have always understood it to mean that if the application is only conditionally approved a firm decision has not been made and it could still be withdrawn or it could still be closed for incompleteness, denied, or approved not accepted.

Are you saying that the as soon as the application is conditionally approved, the withdrawal option is off the table?

What the Q&A is saying is if a credit decision has not been made then the applicant can expressively withdraw the request however if you put a condition on the request that requires additional information needed to approve the application and the applicant does not or chooses not to meet that condition then the withdrawn option is no longer available. IOWs a "conditional approval" is a credit decision requiring additional information and you will report it either closed for incompleteness if the information is not furnished and you provided the written notice of incompleteness under 202.9, or if the applicant does not provide the information and you do not provide the NOI then your report as a denial for an incomplete application. If they do provide the information and you approve the request and it does not close for some reason you report as an approved but not accepted.

This also applies to Reg. B. If I tell you I need this or that in order to process your application and you say forget it I don't want to mess with it I can not treat your application as a withdrawal. I have an incomplete application and I must act on it by either sending you the NOI or an AAN for an incomplete application.

The purpose is to keep a loan officer from putting conditions on a credit request they don't want to make with the intention of making it so difficult the applicant will just say forget it and "withdraw" so they (the LO) don't have to send the applicant an AAN with the reason they don't want to approve the request.

Thanks Dan, this is really helpful and it's making more sense to me now.

I still have some confusion with denying an application for incompleteness. I understood Reg B 202.9(c) to say that if I told an applicant that I still need certain things from him in order to make the loan and he doesn't respond then I am required to send the written notice of incompleteness. I thought you could only deny for incompleteness if you hadn't told the applicant what you still needed from him.

From that standpoint we've always told lenders not to deny for incompleteness because it easily leads to treating applicants differently. You give some the choice to deliver what you need an others get denied before they're given the chance to supply the missing information.

How you treat incomplete applications is strictly up to your procedures as long as they comply with 202.9. Your options are the NOI or just denying the request for an incomplete application. The NOI is not a requirement, it is just an option Reg B gives the FI. However if the denial notification is required if the NOI option is not used.

I would suspect most FIs use the NOI because it gives the applicant the information needed and the date it is needed by. Once the NOI is provided then no further notice is required if the applicant does not respond.

The way we treat ours: (we recently re-did our procedures as we were sending unnecessary AAN's)

1. Application is received and we approve or deny based on credit. Approvals are always subject to various conditions
2. If the application is approved and the borrower expresses either verbally or in writing that they do not wish to proceed, we consider this as "approved but not accepted" No further notice is sent.
3. If they express that they do not want to proceed prior to a credit decision being made, we will withdraw the application and no further notice is sent,
4. If we issue a credit approval subject to conditions and they do not provide the required documents, we will send an NOI with a date in which we must receive this by. If we do not receive by that date, we will also mark this as approved but not accepted and no further notice is sent.
5. We will only "close a file for incompleteness" if we have sent an NOI on a file that does not have an initial credit decision.
6. If no NOI was sent, we will deny the application for an incomplete application and send an AAN.

Based on the FAQs linked above # 4 should be closed for incompleteness.

. . . If the condition involves submitting additional information about creditworthiness the lender needs to make a credit decision and the applicant has not responded to a request for the additional information in the time allowed, use the code for "file closed for incompleteness". . . .