I take a request for prequalification. Upon pulling credit, I know there's nothing I can do; so I decline the prospective loan applicant.
Under Reg B, I now have an application. I have to issue adverse action within 30 days AND since I now have an application, I should have the GMI....Correct?

How do you handle that? Request GMI on everything prior to pulling credit?

when you ask for GMI over the phone, do you just read the verbiage on the applicaiton? Does anyone have a script their loan officers use?

I've struggled with the same concept and if you search in the HMDA threads, there are at least a couple of discussions on the topic. I guess it's supposed to go something like this: take the prequal from the applicant with no GMI gathered. Upon denying the applicant, on their way out while they're ticked off, tell them you need their GMI and when they refuse and storm out , fill it in based on visual observation. Or if this is happening by phone, see if you can ask for the GMI before they hang up and when they hang up without giving you the GMI, put down the field for not recorded in a phone or internet app.

The tricky part is that an approved prequalification that never goes any further (i.e., you approve them, but they never come back and give you a property address) can't have the GMI.

I've had the same question for a while. We receive tons of pre-qualification requests to purchase principal residences....no address or amount though. These aren't reportable for HMDA so no GMI. But they seem to meet Reg B requirements for collection of the information.

I have read several threads on this issue and have seen several different opinions. I do agree that a denied pre-qual becomes an "application" under Reg B. However, the way I interpret the regulation is that it only becomes an application for the purpose of complying with 1002.9, providing the adverse action notice, and not necessarily for compliance with obtaining GMI, just as it would not apply to obtaining an applicant's intent to apply for joint credit. If so, you would have to comply with all application requirements of Reg B at the time of denial.

Official Staff Interpretations - "However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under 1002.9."

I see no exemption regarding an application for a pre-qual in Reg. B:

§ 1002.13 Information for monitoring purposes.

(a) Information to be requested. (1) A creditor that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence,

I see no similar exemption from the joint intent provisions.

A pre-qual is an application for credit under Regulation B, subject to all the rules. Pre-quals are only addressed in Reg. C.

Official Staff Interpretations - "However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under 1002.9."

The above should have been bolded,

the creditor has treated the inquiry or prequalification request as an application and must hen comply with the notification requirements under 1002.9.


Once you have treated it as application it becomes an application. Once if becomes an application you have to comply with the provisions of the Reg unless you can cite a specific exemption.

What did I miss here? Why not collect the GMI when you are taking the information for the application?

Are these scenarios where the LO forgot, and now you have to obtain it after the fact?

Sorry, it's 4:00 on a Friday.

Because a prequalification isn't an application. It only becomes an application under Reg. B purposes if it's declined (or perhaps later, if after approval, a property address is subsequently identified).

The way Reg. B reads IMO, gathering GMI on a prequal that has not yet been acted on is a violation. Gathering GMI on an approved prequal that never goes any further is a violation. Only gathering GMI on a denied prequal is allowed (and required).

I guess that is where I am missing something. Under Reg B...

"I want a loan" = an application. At it's most basic level. What prohibits someone from collecting GMI at that point rather than wait until after credit has been pulled.

I guess you could treat prequals as applications under Reg. B if you so choose. It might be hard to defend though that you will treat prequalification requests with no property address listed as an application for Reg. B purposes, but for RESPA purposes, you will stick with calling it a prequal.

We do treat Pre-Qual's as an application under Reg B.

Here is my thinking...

You don't just hand out Pre-Qual's to people like candy. You do some kind of primitive analysis (very very basic) of their general financial situation. If you have enough information to issue a Pre-Qual letter, you have enough information to say "no". So, how is that not "treated as an application"?

And if all else fails, you have pulled credit.

Examiner: Why did you pull credit
MLO: It was a pre-qual request
Examiner: Did it result in a loan
MLO: No
Examiner: Where is your AAN?
MLO: Uh....

But every approved prequal doesn't result in an origination. Some customers will come to your bank, ask to be pre-qualified, be approved at X amount of dollars, and yet you never hear from them again. You didn't decline them--you approved them. You just never heard from them again. Do you also issue your early RESPA disclosures within 3 days on these prequals? If you do, then a subsequent identification of a property doesn't qualify as a valid changed circumstance.

My experience and understanding is that banks want a property address in order to have an "application", either for Reg. B or RESPA. When someone comes in without an identified property, then banks (if they deal with them at all) treat them as prequals. Since Reg. B mentions prequals, or inquiries, that don't rise to the level of an "application" for Reg. B purposes in the section speaking about notifications of adverse action, the belief is that a prequal or inquiry doesn't rise to the level of an application (unless denied) and therefore wouldn't meet the GMI requirements of Reg. B either.

What if we use a 1003 for all dwelling secured loan applications? We use a 1003 for all residential loan applications, however occasionally an applicant will complete a consumer loan application which does not contain the GMI because this application is general purpose.

If we always use a 1003 for all dwelling secured apps we could inadvertantly receive gmi when it is not allowed under REG B or C, for example a non primary dwelling, debt consolidation loan.

Without using the 1003 we run the risk of not collecting when needed.

Bump

At my former bank, we developed a different application for construction-only loans after receiving examiner criticism when they found 1003s in contruction loan files with GMI completed. We also used a different application for home equity loans whereby there was no GMI. If the home equity loan was for purchase/improvement/refinace, the officer used a separate form for gathering GMI.

Does that help?

I don't think you can use the defense of "inadvertantly" gathering GMI if you regularly have your applicants complete a 1003.

If you ask the loan purpose at initial contact, you can either provide a form without GMI or cross out that section. That would provide a better defense for those that later turn out to not be subject to GMI collection. You at least tried to get it right, but found the customer gave inaccurate information.

At my former bank, on our mortgage on-line ap, we placed a bright and bold statement above the GMI collection section, that if the loan purpose was not, in whole or in part, for the purpose of purchase, improvement or the refinance of a dwelling-secured loan, not to complete the GMI. Then, if the borrower completed it, we could call it inadvertant.

I worked in a mortgage area where we had that but we found customers blew right past it and checked the boxes. We started to cross out.

Having a separate application for the minority of the applications gave us a chance for error of handing out the wrong ap, and that would be our mistake. But for an online ap, yes you have at least limited your chances. Nothing is perfect.

It's hard to manage application forms!! You're right, lending staff are likely to grab the wrong one.

Yes, That is pretty much what we do now. thanks

Ok...so please clarify something for me to make sure I have this correct in my mind concerning collection of GMI. NO PROPERTY ADDRESS - For Reg C purposes, the collection of GMI is a non-issue because it will not be reported on the LAR, but for REG B purposes we are "required" to ask but they are not "required to provide". If we are unable to ask the Borrower because it is an Internet Based Application and denied for example or no contact can be made, then we check the "information not provided". But regardless if a Property Address is NOT listed something must be checked in the GMI fields for applicable loans.

Bump... has anything changed this? I still don't understand why we cannot collect GMI for a prequal application for a dwelling.