While auditing compliance we discovered most of the files had no mention of the applicant's intent to proceed. Compliance's response: "The regulation does not specify a direct method to indicate the applicant's intent to proceed--the method used to notate will vary by lender". Should I push the envelope on this one or am I wasting my time?

We have encountered that as well. One of the "Big Boys" from which we buy loans has even informed us that they have a legal opinion stating that if an applicant pays the app fee, that is their Intent to Proceed. Most other lenders that we purchase from have come around and provide something. Since a sig isn't required we will accept a LOS comment that applicant verbally gave Intent.

Even the "Big Boy" has indicated they will require a written Intent to Proceed beginning 8/1/2015, as the new regs require.

Thanks WHEDA--but, please remind me,what is an LOS?

I believe WHEDA is referring to a loan officer.
I wouldn't make an issue of this now as it will fix itself when the Reg requirement hits next year.

I think I agree with you Truffle--I'll put it on my to do list.

Loan Origination System

I absolutely agree with this. If Congress or the regulators wanted a form to be signed, they would have required it. "Intent to Proceed" is a process that must be demonstrated, but it doesn't require a form. If you want a form signed, you are making a requirement that doesn't exist in the law or regulation. You can do that, but it's your procedure. Not a regulatory requirement.

We recommend to our clients that they issue a letter with the early disclosures (most everyone does anyway) that states:
1. Here's your disclosures.
2. To proceed we need (list verification docs/App fee)

If the borrower provides any of the verification docs or pays their App fee they are demonstrating their intent to proceed. Examiners have never cited any of our clients for this practice. If they did, I would educate them on the regulation.

Yes, David, I do agree with you. But don't you think there should be procedures in place, like the ones you mentioned, so if a regulator asks for our procedures, we can at least quote something besides, "Method used to indicate varies by lender"? I would like to have seen an explanation like yours. RESPA says "When the customer expresses intent"

I don't like "method used to indicate varies by lender" but it sounds like there is a consistent procedure in place. They tell the applicants they have to pay an application fee if they want to proceed. If they pay the fee, they are demonstrating the intent to proceed.

If you mean there should be WRITTEN procedures, I disagree, but you could write that down.

I disagree re written procedures. An unwritten procedure is nothing. There is no bank standard for staff to adhere to, no standard to train on.

I spent to many years corralling staff, answering to " where does it say that", "who says I have to do that", new staff trained every which way. A bank should decide how the institution will handle an issue. At a large bank that may be a product or division decision but standards are needed.

That is also how I defend the bank when problems arise. I have procedures and training.

My point is there is no requirement to have written procedures for this. There should be a bank standard, but it doesn't have to be in writing. I'm against creating rules that don't exist unless it's too stop civil liability or when the consequences are high. If a bank sends out a letter stating what is needed to proceed and borrowers do that, it's very clear that they are waiting for the borrowers to express an intent to proceed when they comply with the letter. This doesn't seem that hard and doesn't seem (to me) to be worth the effort of writing of procedures.

Going to chime in on KB's side.
Examiners invariably ask 'how would someone know this?'
You needn't write volumes but our lending manual addresses intent to proceed being covered by receipt of the items requested in the cover letter. And all LOs use the same cover letter (with only minor loan specific tweaks allowed) that states 'by signing and returning the enclosed documents you are acknowledging your intent to proceed with this loan.'

I too do not like to have to go through files looking for policy/procedures violations, but, this compliance group has required all loan officers have the customer sign the servicing disclosure, which as we all know is not required, so why wouldn't they expect some kind of standardization of intent to proceed? I suggested they don't ask for the signature on the servicing disclosure, but of course they didn't agree. I am internal compliance audit.

There may be no regulatory requirement to get the servicing disclosure signed but lots of investors want it so that may be where your LOs got in the habit of doing it.
So rather than insist on an upheaval, tweak what you've already got in place.
If the disclosure is being signed after the GFE is given, then institute the use of a cover letter that includes the line I quoted in my post above about signing and returning it to indicate intent to proceed.
viola!
you're happy and so are the LOs.
Sometimes you have to give a little to get a little.

[quote]ometimes you have to give a little to get a little.[/quote[
I don't disagree with this and it all depends on what we're talking about. If the investor requires it, then it's a requirement. But don't try to tell me it's a regulatory requirement. The Reg says to demonstrate a process. A letter asking for verifications/application fee is a process that is easily understood and followed.

Similarly: How do you prove you gave privacy disclosures. You don't have to have them signed for. You simply show the process. Auditor's (external or internal) that say "prove it" are wrong if the Reg doesn't require evidence of each transaction. Don't make up rules that don't exist, is my advise.

My exception to this rule is when civil liability or regulatory scrutiny is high for a situation. That isn't the case here.

David, I led my answer with 'there's no regulatory requirement....'

It's so easy to tie this whole issue together with a good cover letter that acts as your process and satisfies any requirements the bank or their investor may have.

To TickTock: I've been up against our internal auditor wanting front line lenders to change to meet their interpretation of some particular issue. Being stuck in the middle is ugly. That's why I suggested you start using a cover letter to show intent. It gets everyone on the same page now AND sets the stage for an easier transition next August when signed intent is required.

Thank you Truffle and David. I asked for their procedure for intent to proceed. I wasn't forwarded a standard letter to the borrower, just told "the method used will vary by lender". That doesn't sound like there is a standardized process to me. Sorry to be an internal auditor, but better we are here to prepare compliance for what they might be confronted with if a regulator were to ask for something--in this case, I don't think they would like the "vary by lender" approach.

We use a cover letter to identify the diclosures that have been provided to the applicant, the next to last paragraph of that letter reads as follows:

If after reviewing these disclosures you wish to proceed with the loan request please return your check for $375.00 to cover the cost of the appraisal in the enclosed envelope. If we do not receive your check on or before xx/xx/xxxx we will assume you have chosen not to proceed with the loan request and no further action will be taken.

We look forward to serving your home financing needs.


Once they provide us the check for the appraisal they have provided their intent to proceed.

That doesn't sound like a standard process to me either. Not a good answer.

I’m late on asking my question. I agree with the method Dan and David gave. We use the cover letter, but how do you suggest handling intent to proceed, when you do not collect fees before closing? All fees are collected at closing. Currently the lenders are “suppose to” document the customer’s intent on our internal checklist. I would like to devise a better process.

Who does the work of underwriting the loans, ordering the appraisal, scheduling the closing, etc.? In some banks, that work is done by underwriters, and the bank could have policies and procedures such that underwriting (other than perhaps a check of credit) won't start unless there's documentation (as defined by policy and procedure) of intent to proceed.

If the entire process is handled by the lenders, you are stuck being the cop trying to manage a difficult to control process.