Skip to content
GeoDataVision
Thread Options
#1781370 - 01/30/13 09:02 PM Pre-approval requests
Insanity Queen Offline
100 Club
Joined: Oct 2008
Posts: 114
Pre-approvals, to my understanding, are for prospective applicants who have NOT yet identified a property. If they have already identified a property, such as with a refinance or they have already found the property they want to buy so they aren't shopping, it is no longer a pre-approval - you have an application under RESPA with the inclusion of the property address, and therefore, it becomes a conditional loan commitment if the prospective customer wants something to give a realtor before the loan is fully underwritten and approved. Am I missing something here, or can someone tell me a better way to handle this? I'm arguing with someone who thinks you can still give a pre-approval letter to a prospective customer that has already identified a property. I can't figure out why (unless they are trying to avoid providing a GFE or something.

Return to Top
RESPA
#1781424 - 01/30/13 10:47 PM Re: Pre-approval requests Insanity Queen
Truffle Royale Offline

10K Club
Joined: Jul 2003
Posts: 17,349
You're absolutely correct.
Property address is one of the six items that makes an application for RESPA.
'someone' either has to deal with a pre-APPROVAL program and all the reg requirements that go with it OR just deal with the fact that they've got an application and give the GFE. There's nothing that says 'someone' can't also write a letter that says 'based on the information available and contingent on final underwriting, Mr & Mrs so and so should qualify for a loan not to exceed $_____.'

Alternatively, you could do pre-QUALIFICATIONS, which do not carry the burden of HMDA reporting. But again, once you have a property address you can no longer consider the application a pre-qual.
Last edited by Truffle Royale; 01/30/13 10:49 PM. Reason: add pre-qual statement
Return to Top
#1782029 - 02/01/13 02:48 PM Re: Pre-approval requests Insanity Queen
Indy Banker Offline
Platinum Poster
Joined: Aug 2010
Posts: 528
Couldn't a lender also require a signed sales contract as the "7th" item a lender can use to define an application under RESPA?

(7) any other information deemed necessary by the loan originator.

If a borrower wants pre-approved to purchase a house he looked at but hasn't entered into a sales contract yet to purchase, how would you accurately disclose some of the information on the GFE without seeing the sales contract? We don't do pre-approvals so I'm not familiar with how they work but if a borrower is interested in purchasing a property he saw but hasn't entered into a sales contract, isn't he still technically "shopping" for a home, not a loan? At our bank our lenders require an applicant to bring the sales contract with them when they make application for a purchase loan, so that they know the borrowers' offer was accepted, and they are committed to proceed with the application.

Return to Top
#1782033 - 02/01/13 02:54 PM Re: Pre-approval requests Insanity Queen
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
At our bank our lenders require an applicant to bring the sales contract with them when they make application for a purchase loan, so that they know the borrowers' offer was accepted, and they are committed to proceed with the application.

Be prepared for criticism and possible financial penalties when you go through your next compliance exam.

The purchase agreement is a verification document and you cannot require any verification as a condition of issuing a GFE.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#1782035 - 02/01/13 02:56 PM Re: Pre-approval requests Insanity Queen
Indy Banker Offline
Platinum Poster
Joined: Aug 2010
Posts: 528
Another question on this, let's say a borrower owns a building lot. He is talking to a couple of builders about the type of house he wants to build, but wants to see how much he could borrow before moving forward and contractors want to see the borrower is approved by a lender before they prepare a building contract. Could a bank pre-approve the borrower (without considering this a complete application) since a property address is most definitely identified? Or would the bank have to consider this an application under RESPA and make estimates knowing that the borrower is still "shopping" contractors, home types, etc.???

Return to Top
#1782042 - 02/01/13 03:13 PM Re: Pre-approval requests Dan Persfull
Indy Banker Offline
Platinum Poster
Joined: Aug 2010
Posts: 528
Originally Posted By: Dan Persfull
At our bank our lenders require an applicant to bring the sales contract with them when they make application for a purchase loan, so that they know the borrowers' offer was accepted, and they are committed to proceed with the application.

Be prepared for criticism and possible financial penalties when you go through your next compliance exam.

The purchase agreement is a verification document and you cannot require any verification as a condition of issuing a GFE.


Ok, maybe "require" was a poor choice of words. It's not a policy, but when they're on the phone with a prospect I'm sure the LO's encourage purchase loan applicants to bring the sales contract in at their appointment so they can give them an accurate estimate of fees, etc. on the GFE. Not out there on the front lines, but just saying it probably happens. I agree - if an applicant stops in to talk to a lender and has all the other information you gotta give a GFE and that is how they are trained.

Return to Top
#1782091 - 02/01/13 04:15 PM Re: Pre-approval requests Insanity Queen
Truffle Royale Offline

10K Club
Joined: Jul 2003
Posts: 17,349
LOs should not be 'encouraging' applicants to bring anything with them. As Dan pointed out, you're not allowed to require verification docs as a condition of issuing the GFE.

Further, having these docs in hand often causes LOs to rely on information in them, again something you're not supposed to do. I've had my share of GFE errors that even necessitated cures because LOs left something off a GFE because 'the offer said the seller would pay for it.'

Return to Top
#1782109 - 02/01/13 04:42 PM Re: Pre-approval requests Insanity Queen
RulesFollower Offline
100 Club
Joined: Oct 2011
Posts: 185
Bike, the GFE is not intended to be "an accurate estimate of fees" as it used to be based on the contract but is now issued "in spite" of the contract terms. Having said that, a seasoned borrower will likely bring in verification docs like the contract, tax returns or pay stubs because they have had to provide these in the past. We mark these items as "voluntarily provided" by the customer at application to
document that they were not "requested" in violation of RESPA.

TR, sounds like you have a training issue with your LOs... even if the contract is provided stating some fees will be paid by the seller we all know since 1/2010 that the buyer must pay these fees at the table with a reimbursement from the seller so those fees should always be included on the GFE.

Return to Top
#1782172 - 02/01/13 06:12 PM Re: Pre-approval requests Truffle Royale
Indy Banker Offline
Platinum Poster
Joined: Aug 2010
Posts: 528
Originally Posted By: Truffle Royale
LOs should not be 'encouraging' applicants to bring anything with them. As Dan pointed out, you're not allowed to require verification docs as a condition of issuing the GFE.

Further, having these docs in hand often causes LOs to rely on information in them, again something you're not supposed to do. I've had my share of GFE errors that even necessitated cures because LOs left something off a GFE because 'the offer said the seller would pay for it.'


Again, maybe I'm just choosing my words poorly today but you are preaching to me what I already know. The point I'm trying to make is the too-often disconnect that those of in the back offices with all the regulations in front of us have and what actually happens with our front-line people, regardless of the hours we spend training. I'm just trying to say that if a LO has someone on the phone that has an executed sales contract to purchase a house, we're fooling ourselves if we don't think our LO is going to ask the borrower to bring it along to the interview (they're going to need it for the appraiser, for one thing). The LO may even be disclosing a GFE before the borrower pulls the sales contract out of his pocket. That's different than saying "I won't give you a GFE until you give me a copy of your sales contract" which of course violates RESPA. I was just trying to illustrate the ongoing challenge we have with the folks on the front lines... Never-ending.

Return to Top
#1782334 - 02/01/13 09:11 PM Re: Pre-approval requests Insanity Queen
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
if we don't think our LO is going to ask the borrower to bring it along to the interview

There is absolutely nothing wrong with the MLO informing the potential applicant what documentation will be needed and that if they bring it with them to the interview it will help speed up the process, but they absolutely cannot require it as s condition for issuing the GFE.

Your first post that I initially responded to gave me the impression your MLOs were requiring the offer to purchase to be provided before they consider the application to be one under RESPA. That's why I responded as I did.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#1782511 - 02/04/13 03:18 PM Re: Pre-approval requests Insanity Queen
Truffle Royale Offline

10K Club
Joined: Jul 2003
Posts: 17,349
I too was responding to the post that asked
Quote:
Couldn't a lender also require a signed sales contract as the "7th" item a lender can use to define an application under RESPA?
The answer to this question remains an absolute 'no'. However, we all know that borrowers bring it in and LOs have to be reminded to ignore it till after they give the GFE.

Return to Top

Moderator:  QCL