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#1739573 - 09/10/12 08:40 PM Insufficient Collateral
ahkcompliance Offline
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Midwest
We are denying a loan based on insufficient collateral. Do we need to check the box under the FCRA section about we obtain information from a third party....

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#1739595 - 09/10/12 09:03 PM Re: Insufficient Collateral ahkcompliance
TMatt87 Offline
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Idaho
Insufficient collateral has nothing to do with credit worthiness, so we don't check either box when we have an appraisal come in low.

We use the second checkbox when we obtain information regarding the applicant's creditworthiness from someone who doesn't report to a CRA, like a landlord or possibly an employer.
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#1739691 - 09/11/12 01:22 PM Re: Insufficient Collateral ahkcompliance
ahkcompliance Offline
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Midwest
Ok thank you! The AAN just looks weird with neither box being checked.

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#1739704 - 09/11/12 01:40 PM Re: Insufficient Collateral ahkcompliance
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
based on insufficient collateral

I always get a little nervous when this term is used with no explanation why the collateral is insufficient or the type of credit applied for.

Is the value or type of the collateral insufficient or do they truly have insufficient collateral to offer. IOWs they only have one car to offer instead of three, or no collateral at all.

Also if the type of credit applied for is unsecured credit then "collateral" is not a valid reason for adverse action.
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#1739757 - 09/11/12 02:50 PM Re: Insufficient Collateral ahkcompliance
Richard Insley Offline
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Toano, VA
I used to deal with examiners who automatically criticized "insufficient collateral" or anything like that. Their position was that collateral is only a secondary source of repayment. If collateral was necessary, then the borrower was not strong enough to qualify for unsecured credit and the primary reason(s) for AA related to the borrower's weaknesses, not the collateral.
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#1739760 - 09/11/12 02:54 PM Re: Insufficient Collateral ahkcompliance
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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I would argue that on a residential mortgage product, which is by nature secured credit.
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#1739762 - 09/11/12 03:02 PM Re: Insufficient Collateral ahkcompliance
Richard Insley Offline
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Toano, VA
I don't don't remember that they applied exactly the same principle to residential mortgages.
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#1739763 - 09/11/12 03:03 PM Re: Insufficient Collateral ahkcompliance
Dan Persfull Offline
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Dan Persfull
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Posts: 46,417
Bloomington, IN
I would argue that on a residential mortgage product, which is by nature secured credit.

I agree 100% but ahkcompliance gives no indication what type of credit is being applied for. They only refer to "insufficient collateral" which could imply the borrower is trying to borrow $25,000 on a $10,000 car. Or I have seen way too many times where the applicant applied for unsecured credit and the loan officer tried to deny it for insufficient collateral when no collateral was offered.
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#1739764 - 09/11/12 03:04 PM Re: Insufficient Collateral ahkcompliance
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Agreed, just wanted to make the point that for a secured product, it needs to be secured regardless of credit...or go through some particular high end customer channel many community banks do not have.
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#1740569 - 09/13/12 02:44 PM Re: Insufficient Collateral ahkcompliance
ahkcompliance Offline
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Midwest
It was for a real estate transaction. We received the appraisal back and it was not high enough to suppor the amount of money the borrower wanted.

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#1740614 - 09/13/12 04:00 PM Re: Insufficient Collateral ahkcompliance
Richard Insley Offline
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Richard Insley
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Toano, VA
Then the problem isn't "insufficient collateral", it's "insufficient downpayment." The purpose of an AA notice is to alert unsuccessful applicants to deficiencies they can correct. Applicants can't make the property appraise higher, but they can increase the downpayment.
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