We don't have a written preapproval program. Our gen counsel wants to have our loan officers provide this type of letter to loan applicants. Is this a preapproval letter subject to HMDA & Reg B?

"Our compnay is pleased to inform you that based on the information and/or documentation which you have provided in connection with your loan application, you are preliminarily approved for a loan in the amount of $[loan amount], provided, however, you satisfy and meet all of the conditions that our company imposes, in its sole and absolute discretion, in connection with your loan application and your loan.

These conditions include, but are not limited to: (a) the continued availability of the type of loan or loan product or program on which this preliminary determination is based, at an interest rate no higher than the interest rate at the time of such determination; and (b) our company's receipt of the information and documentation listed in the attachment to this letter, each in form and content satisfactory to our company and meeting all applicable underwriting and other standards and requirements imposed by our company, in its sole and absolute discretion.

This letter is not a final loan approval nor is it a commitment to make a loan to you. This letter is only intended to give you a preliminary indication of your eligibility for a loan, based on information and/or documentation which you have thus far provided."

Thanks for your opinions.

I would say, no, it is not an application for purposes of Reg. B or HMDA. It is not a commitment, it is subject to underwriting, more than just an appraisal or conditions which are commonly met at closing.

On the surface I would think no, but it depends on the work performed to get to the determination. Did you pull credit reports or run through LP or other underwriting program? If the amount is only based on the customer stated income/debt amounts no, but if you had enough info to make a credit decision and it only needs to be verified to complete I would consider otherwise.

Well I'm in a similar situation here (no formal program), but if we've gone that far (application, LP approve, and letter issued) we consider that a preapproval request.

I know the HMDA rules had some specifics about the letter, but I don't know if you can invalidate the process by some choice wording. If it walks like a preapproval program....

Others may have a different viewpoint.

Our gen counsel and I (compliance officer) are in disagreement with eachother regarding whether or not this is a preapproval and reportable. I say HMDA reportable and Reg B AAN needed. Gen counsel says not either. Still a quandry.

Why would a AAN be needed?

I thought if we deny a preapproval we had to issue a denial. If we don't we won't.

Gotcha - you are correct.

I should rephrase myself, I should have said your program sounds like a prequal program for purposes of Reg. B, as opposed to a preapproval/application, unless of course it is declined. But I agree, I wouldn't niggle over the details when it comes to Reg. B, it's probably easier and safer to just treat it as a pre-approval.

The reason I'd shy away from labeling it a preapproval is HMDA. If it does not more closely meet the defintion of a qualifed home-purchase preapproval program than it appears to, will it invite examiner comment if you report it as a preapproval? It would be nice to know if examiners plan to hold a yardstick up to the HMDA preapproval, citing banks if we report as a preapproval but it fails to meet the defintion. How much difference can it make?

We're FDIC reguluated, and have been told that if we have a qualified HMDA preapproval program (regardless if it is a formal, written program) we need to ensure the entire bank (retail, commercial, and mortgage) are following the same preapproval procedures. Guess I'd rather avoid going there!

We are also FDIC regulated and our examiners indicated that if we issue a commitment to lend, however qualified, we have a pre-approval rather than a pre-qualification under HMDA. In order to avoid a customer misunderstanding, we don't pull credit and we don't collect income verification. We just have them complete a pre-qualification request and we analyze only what they have told us.

We word our letter carefully: "Based solely on the information you provided, it appears you would qualify for the following:
Term : 30 year
Loan amount: up to $100,000.00
Rate: not to exceed 5.0%

This is a preliminary opinion, and should not be construed as a commitment to lend. "

We haven't had a problem.

I would have to argue that --- if your home purchase commitment doesn't meet the definition how can they write you up for that? My lead examiner was more concerned if we were found to be making qualified preapprovals, we would be expected to issue them uniformly and in a consistent manner(read procedures)throughout all lending areas. I guess it would be too much to ask for consistency between individual examiners within the same agency!

When all is said and done, how much weight will this carry during an exam? Is this a "key" field?"

I could be way off base, but I think the whole question of "is it or isn't it" a preapproval is grossly more important to us for Reg. B reasons. But again, that's why I'd like to know how much importance examiners will be placing on it. I imagine this will become much more clear to us after our next HMDA exam!