A loan was approved subject to creditworthiness conditions and a notice of incompleteness was not sent. The borrower did not refuse to provide the information but withdrew because they could get a better rate from another lender. Since the notice on incompleteness was not sent we cannot code this as file closed for incompleteness. Since the borrower did not refuse to provide the information and did not fail to respond should this be coded as withdrawn since they withdrew prior to a final decision being made? I know that credit decision is not clearly defined in the Reg but in the Q&A below it states "If the condition involves submitting additional information about creditworthiness the lender needs to make a credit decision" it implies that a conditional approval can be given without a credit decision.

Conditional approvals---failure to satisfy creditworthiness conditions. How should a lender code "action taken" where the borrower does not satisfy conditions concerning creditworthiness?
Answer: If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn."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 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." See Appendix A, I.B.1.e. If the borrower has supplied the information the lender requires for a credit decision and the lender denies the application or extends a counter-offer that the borrower does not accept, use the code for "application denied." If the borrower has satisfied the underwriting conditions of the lender and the lender agrees to extend credit but the loan is not consummated, then use the code for "application approved but not accepted."
For example, if approval is conditioned on a satisfactory appraisal and, despite notice of the need for an appraisal, the applicant declines to obtain an appraisal or does not respond to the lender's notice, then the application should be coded "file closed for incompleteness." If, on the other hand, the applicant obtains an appraisal but the appraisal does not support the assumed loan-to-value ratio and the lender is therefore not willing to extend the loan amount sought, then the lender must use the code for "application denied."

From the FFIEC HMDA FAQs

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."

For example, if approval is conditioned on a satisfactory appraisal and, despite notice of the need for an appraisal, the applicant declines to obtain an appraisal or does not respond to the lender's notice, then the application should be coded "file closed for incompleteness."

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We’ve been going round and round with an issue involving withdrawals and “credit decision.” Just some thoughts….

The coding choice of “application withdrawn” is available only when the application is expressly withdrawn by the applicant before a credit decision is made. However, we all know that the term “credit decision” is not specifically defined within HMDA.

Is a credit decision the final credit decision or any credit decision made along the way? That is, an initial review of a loan file will bring about a decision by an underwriter: decline the loan or request/wait for more info (appraisal, etc.) in a process toward a potential approval. Any step along the way could lead to either, until a final decision is made: approve, decline, or counteroffer. Is a credit decision limited to a conditional approval or a final approval (in the form of a commitment letter). This leads to my next point.

Are there magic words for HMDA coding once a commitment letter is sent? For example, a commitment letter is sent stating that the loan has been conditionally approved subject to adequate appraisal. If the commitment letter (conditional approval) is not a credit decision the following is how the LAR should be coded based on what the customer says or doesn’t say.

“Please withdraw my application” = application withdrawn.
“I don’t want to obtain an appraisal” = file closed for incompleteness.
No response from the customer = file closed for incompleteness.

Interestingly, the FAQ doesn’t use the word “withdrawn” in providing the guidance. It talks about how to code if the applicant declines to get the appraisal or if they do not respond. In any event, an express request to withdraw an application, declining to obtain an appraisal, and no response from the customer all lead to the same thing. The loan is no longer in process. But the coding on HMDA will be different when the customer utters the magic words.

How does that help provide the public with loan data that helps determine whether the financial institution is serving the housing needs of the community or assist in identifying possible discriminatory lending patterns, as the purpose of HMDA states? A loan withdrawn 15 minutes after it was dropped off with a loan originator and not even reviewed is coded the same as a loan 15 minutes away from hitting the underwriter’s desk for a final approval after an exhaustive underwriting analysis. If a conditional approval is not a credit decision the loan about to be approved will be coded the same as the application that was never even looked at.

A conditional approval is a credit decision. You have decided if the applicant satisfactorily meets these conditions you will make the loan, if they don't you won't.

In the above situation the customer chose not to meet the conditions due to a better deal elsewhere. Therefore you're left with an incomplete application.


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 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."

Dan,

I'm not sure that "a conditional approval is a credit decision" is a true statement. What the FAQ does not discuss with respect to the scenario you highlighted in blue, "If the condition involves submitting additional information about creditworthiness the lender needs to make a credit decision"......then

....and the applicant expressly withdraws the application.....then I believe it is coded as "Withdrawn". I don't think you can count the conditional approval in that case as a credit decision when you still need information needed to make a credit decision.

Thoughts?

I agree the statement "additional information about creditworthiness the lender needs to make a credit decision" leads me to believe that they are saying that a conditional approval is not a credit decision since it is saying the condition needs to be satisfied to make a decision.

The Q&A does not give you the option of using withdrawn if a conditional approval has been given.

Your options are closed for incompleteness or a denial for an incomplete application.

In the example they give they are assuming you have sent the notice of incompleteness. The same Q&A says "If a credit decision has not been made and the borrower has expressly withdrawn, use the code for application withdrawn.". So if a conditional approval is not a credit decision as the Q&A would suggest you would code is as application withdrawn.

Where in the Q&A is that assumption made?

If I verbally inform you today that I need X by Y and you choose not to provide it by going elsewhere I need to deny your application within 30 days for an incomplete application, or if you fail to respond within 90 days I have to send you a denial for an incomplete application.

Once I inform/notify you of the conditional decision I no longer have the withdrawn option for either Reg B or Reg C.

From the HMDA FAQ:



If Withdrawn was not an option for a conditional approval where the "condition involves submitting additional information about creditworthiness the lender needs to make a credit decision" then why would it be mentioned in the FAQ under "Conditional approvals"?

My interpretation of the above is that it clearly states that a credit decision has not been made in the conditional approval highlighted in green. If a credit decision has not been made, then Withdrawn is still an option to use.

Here's a couple of examples of a conditional approvals/credit decisions.

Loan Officer: Your DTI is at 55%. I will approve the loan if you can reduce your DTI to 40%.

Applicant: I can't do that so let's just forget it.


Do you have a withdrawal or do you have a denial?


Loan Officer: Your credit report shows some past payment problems. I will approve your loan with a co-signer.

Applicant: I don't have anyone that will co-sign for me so there is no reason to proceed.

Do you have a withdrawal or do you have a denial?

In your analysis you keep skipping over the statement that is high lighted in red.

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

The conditional approvals that that I am refering to would be if a customer applies and the they are approved subject to verification of employment and tax returns. Then the customer withdraws because they decided to go with another lender. I can't imagine we would have to send a denial in this situation.

Dan, I'm not skipping over it. My point is that a credit decision has not been made if you are conditional approving it subject to them providing information needed to "make a credit decision". So my analysis conclusion is that a credit decision has not been made, therefore "The code is not otherwise available" is not in play because the previous statement is still in play.

Two events must be true to have a withdrawn application:
1. Applicant must expressly withdraw
2. Credit decision must not have been made

If those two events aren't true then you're statement comes into play, "The code is not otherwise available".

This would be a decline because the lender had all of the information needed to make a credit decision and the applicant could not meet underwriting requirements.



This would be a decline because the applicant did not accept the counteroffer.

None of the examples you listed would be considered Withdrawn because a credit decision was made.

Rule #1: Don't argue with Dan.

Rule #2: Reread what he has said.

I would think that after 38000 posts and many of them related to HMDA, you might want to take advantage of his wisdom.

Nothing wrong with a good debate

With almost 5000 threads in the HMDA forum, trust me, it is not a new one

I do not think any of them explain how a conditional approval is a credit decision when the Q&A says that a condition of a conditional approval can involve something needed to make a credit decision.

"If the condition involves submitting additional information about creditworthiness the lender needs to make a credit decision "

I agree with terpsfan, at least from the perspective of what the FAQ states.

Our conditional approval letter always states that the applicant needs a satisfactory appraisal. The FAQ considers this a condition related to creditworthiness.

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."

According to the FAQ, we have therefore not made a credit decision if we sent a conditional approval letter requiring a satisfactory appraisal (an underwriting condition) and we need this condition to be satisfied in order to make a credit decision. In other words, the decision to grant a final approval is contingent upon a satisfactory appraisal. Is that not the case in 99.9% of mortgage loans? Is the FAQ telling us that the definition of a credit decision is the final approval for a loan that was not declined or counteroffered?

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.

So if we conditionally approve a loan subject to a satisfactory appraisal the customer can still withdraw the application because we haven’t made a credit decision. Do we use the action taken code “application withdrawn” for these? I don’t think this in any way furthers the purposes of HMDA.