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#1898334 - 02/19/14 09:40 PM Re: prequalifications and credit reports Shopgirl
hgliii Offline
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Again, I am not disagreeing with your logic or sentiments, but I worked for a nationally known third party compliance company for many years. We looked at these issues from all types of regulated FIs. For the most part the regulators would tell us that it was up to each institution to determine how applications were to be received. They were looking for inconsistencies and practices that may allow violations of ECOA Rules.
So to say our way is the right way, is not always correct.

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Lending Compliance
#1898343 - 02/19/14 10:02 PM Re: prequalifications and credit reports Shopgirl
swiggles Offline
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Oh....absolutely, hgliii!! It's usually the "examiner's way" is the right way.....even if it's really the wrong way. LOL
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#1900934 - 02/27/14 10:10 PM Re: prequalifications and credit reports raitchjay
BankingNut Offline
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Joined: Apr 2010
Posts: 90
Originally Posted By: raitchjay
Do you have written application for your prequals? I don't view them any differently than i do a regular real estate application.....they're making a request for a "credit transaction" (albeit, a down-the-road credit transaction); we have a permissible purpose to pull their credit.

You'd have issues if your credit report is dated prior to your prequal request. Just my simple thoughts on your issue...hope it helps.


It really depends on how you treat the prequalification request. In my opinion, many banks get confused and make errors regarding this. According to the FCRA there are an enumerated list of reasons you can pull credit. The one banks use for applications, generally require an actual Reg. B application (IE a request for credit).

So how you treat your prequalification is key. Is your prequalification an inquiry? If so, the customer is just requesting information about general loan products, terms, possible rates, etc. IMO this is not an application and not a permissible purpose to pull credit.

If you treat the prequal as an application, then you have a permissible purpose to pull credit. But be prepared, the moment a property address is identified you have everything you need to do a GFE and ETIL. You also have Reg. B requirements and you have 30 days to provide the applicant with the preliminary decision. Don't let this get out of hand where you have loan officers pulling credit and not withdrawing applications 9 months later. This becomes loan officers pulling credit and not closing out applications that have gone elsewhere or have been denied.

The next major stumbling block is refinances. Do you do preqaultifaction refinances? I hope not. It is my opinion that the applicant already has a property and you better have all the disclosures ready to go.

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#1900942 - 02/27/14 10:22 PM Re: prequalifications and credit reports swiggles
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Originally Posted By: swiggles
But I bet you're wondering if you should send a "notice of incomplete application." I grapple with that too. But Regulation B states that if if the creditor "approves" an application and the bank anticipates that the applicant will inquire about the status, and the applicant doesn't, then the creditor may treat the application as withdrawn. And the commentary states that the "incomplete" rule doesn't apply to "pre-approvals" which is technically what we're talking about under Reg B.

If we approve an application for for a pre-qualification for which there is no address and base the approval on the unverified stated income and information in the credit report and the applicant won't return our calls, we classify as withdrawn and send it to record retention.


I am not going to address every comment in this thread but I found that this one warranted my opinion (if ever anything warranted my opinion.

I am concerned on how you are approving something that you never verified. I think you might be confusing an inquiry with an application. If you have an inquiry that you are not verifying anything, why are you pulling a credit report? What is so important to verify that you cannot provide an unbinding letter based on information verbally provided to you?

If you turn this into an application, you better be prepared to close the application out. Every institution should put reasonable caps (and flexible caps) on how long prequalitication requests remain open before communicating to the customer that they are withdrawing the application (and the customer can come back and apply), or when to deny the loan. Don't get me wrong, be flexible. Sometimes purchases take a long time. But at the same time be reasonable. Do not let loan officers keep applications open. What some loan officers will do is pull credit, keep an app open and wait for rates to drop. Then they will call certain customers and let them know rates have dropped etc. Or they can even, pull credit when they don't have an application (request). Keeping good controls in place is always the best way to handle this. There is no black and white answer but having a good program and a way to monitor credit pulls, is essential.

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#1900945 - 02/27/14 10:27 PM Re: prequalifications and credit reports Shopgirl
raitchjay Offline
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I don't look at prequals and inquiries as the same thing. How can you 'pre-qualify' anybody for anything without pulling their credit?
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#1900959 - 02/27/14 11:03 PM Re: prequalifications and credit reports raitchjay
swiggles Offline
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Right on, Jay. For our pre-qualification program, the applicant completes an application by filling out a pre-qual ap form or by completing the form verbally....the loan officer reducing the verbal ap to a written pre-qualification form. We access credit and analyze what we have so far. Will the credit pass? Will the unverified DTI pass? If so, we have a preliminary approval until a property is identified. We communicate that preliminary approval to the applicant. Our officers call on these applicants fairly routinely until the customer says "nevermind" or indicates they've gone to another lender, or says he/she decided not to purchase a house after all or just flat won't talk to us. Then we label as withdrawn. Once a property is identified, we do disclosures w/i 3 days.
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#1900962 - 02/28/14 12:00 AM Re: prequalifications and credit reports Shopgirl
rlcarey Offline
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Galveston, TX
Then we label as withdrawn.

Why withdrawn? You already denied them or gave them a pre-qual decision. If you have already pre-qualed them, you have made your credit decision (well as far as you are ever going to go unless they come back).
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#1901040 - 02/28/14 02:33 PM Re: prequalifications and credit reports rlcarey
swiggles Offline
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swiggles
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Originally Posted By: rlcarey
Then we label as withdrawn.

Why withdrawn? You already denied them or gave them a pre-qual decision. If you have already pre-qualed them, you have made your credit decision (well as far as you are ever going to go unless they come back).


Sorry, Randy. My period should have been a comma.

We communicate that preliminary approval to the applicant. Our officers call on these applicants fairly routinely until the customer says "nevermind" or indicates they've gone to another lender, or says he/she decided not to purchase a house after all or just flat won't talk to us, then we label as withdrawn.
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#1912689 - 04/08/14 05:34 PM Re: prequalifications and credit reports Shopgirl
complyorelse Offline
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Swiggles, you mentioned an "abbreviated" application for prequals. Why do you do this? It sounds like a great idea but I want to be sure I understand the why behind it.

Another observation from different posters is that a fully executed contract is needed in order to process an application, give disclosures, etc. Is this allowed under RESPA to require a sales contract? Is it considered to fall under the applicaiton definition as other documents the lender may require?

I appreciate any feedback. Thanks.

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#1912696 - 04/08/14 05:39 PM Re: prequalifications and credit reports Shopgirl
raitchjay Offline
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Waiting to give a GFE or other earlies because you don't have a sales contract will get you in nothing but trouble.
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#1912716 - 04/08/14 06:00 PM Re: prequalifications and credit reports Shopgirl
complyorelse Offline
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That is what I've always understood but I hear form other lenders that they will either not accept the application (seems like a Reg B issue) or deny it for incompleteness. So if someone submits an application for X dollars on a house they hope to buy, and the purchase price changes once the contract is executed, you would just have to redisclose?

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#1912723 - 04/08/14 06:06 PM Re: prequalifications and credit reports Shopgirl
Dani York, CRCM Offline
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TN
RESPA calls the sales contract a verification document. The bank can NOT hold the GFE pending a verification document. So if you have an application (all 6 required pieces per RESPA), you need to issue a GFE. If the purchase price changes and it affects the costs of the loan (ie loan amount, origination fee, title work charges, etc), you would have a changed circumstance and can redisclose the GFE with the fees affected by the change. That redisclosure must happen within 3 business days of the change.
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#1912724 - 04/08/14 06:06 PM Re: prequalifications and credit reports Shopgirl
raitchjay Offline
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If the price change causes your fees to rise and you wish to capture them, then yes, that would be a valid CC (a customer requested change in loan amount). Lenders not accepting an application because there's no sales contract are violating RESPA, because there are 6 pieces needed for a RESPA application, and a sales contract ain't one of them.
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#1912733 - 04/08/14 06:14 PM Re: prequalifications and credit reports Shopgirl
complyorelse Offline
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Great. Thanks a lot.

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#1912863 - 04/08/14 10:56 PM Re: prequalifications and credit reports complyorelse
swiggles Offline
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swiggles
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Originally Posted By: complyorelse
Swiggles, you mentioned an "abbreviated" application for prequals. Why do you do this? It sounds like a great idea but I want to be sure I understand the why behind it.

Another observation from different posters is that a fully executed contract is needed in order to process an application, give disclosures, etc. Is this allowed under RESPA to require a sales contract? Is it considered to fall under the applicaiton definition as other documents the lender may require?

I appreciate any feedback. Thanks.
The Mortgage folks like the pre-qual application form.....I do NOT. To me, it's a way to avoid obtaining a property address......or appears so to me. But I can't prove it. My mortgage people also tell me that they don't require a contract as evidence of an identified property.....that's just how it usually happens, or so they say.
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#1916162 - 04/21/14 04:01 PM Re: prequalifications and credit reports Dani York, CRCM
ynot Offline
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Joined: Sep 2011
Posts: 81
Florida
DaniYork, you state that RESPA calls the sales contract a verification document, where in RESPA is this stated?

What can be the 7th piece per RESPA? (1)borrowers name(2)monthly income (3)borrowers social security number(to obtain a credit report)(4)the property address (5)an estimate of the value of the property (6)the mortgage loan amount sought, (7) ANDany other information deemed necessary by the loan originator.

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#1916170 - 04/21/14 04:32 PM Re: prequalifications and credit reports Shopgirl
raitchjay Offline
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(5) The lender may at any time collect from the loan applicant any information that it requires in addition to the required application information. However, the lender is not permitted to require, as a condition for providing a GFE, that an applicant submit supplemental documentation to verify the information provided on the application.
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#1916171 - 04/21/14 04:34 PM Re: prequalifications and credit reports Shopgirl
Truffle Royale Offline

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3500.7(a)(5)...the lender is not permitted to require, as a condition for providing a GFE, that an applicant submit supplemental documentation to verify the information provided on the application.

What else does an offer to purchase do but verify information provided on the application? Therefore it canNOT be your 7th item.

fwiw, most lenders I know do not use that optional 7th item for anything. They get the six, they disclose...period.

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#1916230 - 04/21/14 07:06 PM Re: prequalifications and credit reports Shopgirl
ynot Offline
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Florida
Thank you raitchjay and Truffle Royale.

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