A consumer applies for a secondary market mortgage, the mortgage provider turns down the application based on the appraisal. We then decide to make the loan in-house. Is an adverse action notice required or can we decide on a change in circumstance and move forward?

If the applicant applied to a different company, and they made the decision, they owe her an AAN based on collateral.

Depending upon what has been communicated to the customer, an inability to place the loan with an investor is not a changed circumstance. That is the bank's problem, not the customer's. There are a number of threads on this topic.

If we offer the in house deal as a counter offer am I correct in stating no adverse action notice is required?

A compliant counter offer (assuming that is correct in your situation - did the bank already commit?) serves as adverse action and the notice of what the bank is willing to offer.

If the terms and conditions of the in-house product are less advantageous than those of the secondary market product, then you need to either provide the combined counter offer/decline notice or provide and AAN if the applicant does not accept the counter offer.

I haven't spent anytime analyzing this situation, but wouldn't this have also triggered the anti-steering disclosure at the time the original loan was contemplated?

I know - off topic.