Sole borrower applies for a residential mortgage, Loan Officer informs him verbally that the deal isn't strong enough and asks for a co-borrower. Co-borrower is then added, but loan never closes because the borrowers went to another bank for a better deal. Never got as far as a committment letter. There's no Notice of Incomplete App. LAR indicates a Withdrawal. I wonder if it's really a Decline IF asking for a co-borrower is really a counter offer? (But co-borrower was added.) Can anyone help sort this? Thank you.

Original application was denied - period.

RLCarey: Thank you for your reply. I agree, just needed to see if I was losing my marbles. L.O. indicates, however, that co-borrowers are added and subtracted all the time during the course of the application and they never consider the first 'app' to be declined. They just consider it to be a change made during the course of the application.

You need to understand the:
- bank policy and the
- LO's version. If they are doing something which could cause the bank to have an encounter with the DOJ, someone needs to be aware.

The first loan was declined when the LO indicated it was weak and needed a co-borrower (per ECOA). Adding a perspective co-borrower just added some time. The only time that a counter-offer is not a decline is if it is expressly taken (i.e. loan closed/funded).

This. I have seen this issue too many times where lenders don't see telling someone the deal is not going to work as a denial. "They never completed a real application! We were talking about it, I pulled their credit, saw the credit score of 580, told them it wouldn't work so they said forget it. Not a denial!"

Like Rocky stated, you need to look into this practice immediately to try to avoid future regulatory concerns.

"They never completed a real application! We were talking about it, I pulled their credit, saw the credit score of 580, told them it wouldn't work so they said forget it. Not a denial!"

My Answer: "Oh, so you're prescreening applicants and discouraging applications for credit. Why didn't you just say so? I understand now. Thank god that is a legal practice under the ECOA"

Not an application???? Bullfeathers!
From the ECOA commentary 1002.2(f)

When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. 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. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks.

My Answer: "Oh, so you're prescreening applicants and discouraging applications for credit. Why didn't you just say so? I understand now. Thank god that is a legal practice under the ECOA"

After 40+ years in the business I did not know that!

I agree with Randy.

This situation is something I go over with lenders ALL THE TIME.... lordy mercy.

My reaction was actually pretty similar. After I picked my jaw off the ground. Let's just say that there were a lot of unreported denials on the LAR.... Thankfully it was during my consulting days and not at an employer where I was the CO.