I'll say this again too. What about the gagillions of HMDA reportable loans that are not RESPA loans. Are you sticking to a 3-day rule on those too? Last time I checked Reg B, you had 30 days to make a decision.

I'm not trying to argue, but I think the 'logic' is completely 'illogical' and one-sided/narrow in scope.

Swiggles, our files are typically marked withdrawn(unless done by a more savvy HMDA-oriented person) and usually because the customer called and said 'nevermind' or "i'm just going to pay cash/pay it off/whatever". All of our non-originated loans are looked at to verify HMDA reportable (or not). If they are HMDA reportable and marked ANA, we go no further. If they are marked "Withdrawn" we look deeper and discuss with the originating officer, if needed, to clarify and document whether they are actually W/D or ANA.

Any written communication is placed in file. If via email, a copy of the email is placed in the file. Telephone withdrawals are documented by the LO as to when received.

Awesome...thanks. I want to put in place a system whereby the officer chooses WD or ABNA and then compliance looks at the selection and file documentation to see if it looks feasible......thus my need for a guideline or facts which will help loan officers decide and compliance to agree.

I find that officers' perception of WD and ABNA are all over the board. And I agree regarding investigating WD files as some officers tend to mark their files withdrawn, automatically, as though ABNA doesn't exist.

And thanks, Truffle.

Yes, swiggles...and it's likely a result of Reg B rules being older than HMDA. !!

Absolutely not! No where have I ever stated (or implied) a bank has 3 days to make a decision. Non-RESPA loans don't have this requirement and therefore wouldn't be subject to this.


What I am saying is RESPA requires a bank to give a "binding and meaningful" GFE. RESPA also requires a bank to underwrite a loan PRIOR to issue a GFE (as I have quoted from the Federal Register). Therefore, RESPA applicable loans require underwriting (a conditional approval) when GFE's are issued.

When a lender provides a GFE & P-TIL, aren't they saying they would approve the loan with those terms and fees (assuming everything is verified and checks out)?

David, I do agree that I would not deliver a GFE on a loan product/terms that doesn't exist and couldn't be made. I simply do not agree that a loan must be underwritten and conditionally or otherwise approved before issuing disclosures.

It's often not even humanly possible!

You will find absolute no disagreement from me on this statement. But as I have previously pointed out, that is not the issue.

The issue remains the specific definition of an "approved but not accepted" loan application under the HMDA guidelines, which continues to be sidestepped by discussions regarding RESPA requirements.

David, please address what you think these statements from the CFPB mean:

1. The CFPB has stated: "The commentary generally provides that financial institutions should report loans approved subject to underwriting conditions which are not met should be reported as a denial, but it also provides that certain customary loan commitment or loan-closing conditions are not underwriting conditions. Additional guidance on this topic had been published in the FFIEC FAQs."

2. The CFPB has stated: "If the applicant expressly withdraws before satisfying all underwriting or creditworthiness conditions and before the institution denies the application or closes the file for incompleteness, the institution reports the action taken as application withdrawn. If all underwriting and creditworthiness conditions have been met, and the conditions are solely customary commitment or closing conditions and the applicant expressly withdraws before the covered loan is originated, the institution would report the action taken as application approved but not accepted."

3.The CFPB provided additional examples of customary commitment or closing conditions in the HMDA proposal: "These examples include: acceptable title insurance binder; clear termite inspection; a subordination agreement from another lienholder; and where the applicant plans to use the proceeds from the sale of one home to purchase another; a settlement statement showing adequate proceeds from the sale. The existing examples of a clear-title requirement and acceptable property survey are retained.

4. The CFPB also provided examples of underwriting or creditworthiness conditions which mirror the current statements from the FFIEC: "These examples include: conditions that constitute a counter-offer; satisfactory debt-to-income ratio or loan-to-value ratio; determination of the need for private mortgage insurance; satisfactory appraisal requirement; or verification or confirmation that an applicant meets underwriting conditions; including documentation of income or assets.


Didn't your last statement ("assuming everything is verified and checks out)?") not just confirm that all underwriting or creditworthiness conditions have not been met when you provide a GFE & P-TIL??

If not, I continue to be really confused.

Randy, that is crystal clear to me. I don't see how on earth it can be interpreted any other way.

Now see, I do disagree with David's statement.
When we give a GFE all we're saying is 'Here are the estimated costs for the loan you applied for.'

In my world, the only thing that gets looked at prior to issuing the GFE is the actual credit score. If it's too low for the program applied for, we deny. Otherwise, it goes straight to get the GFE done and out the door within the three days.

TR - Well, you have to admit that you can only disagree with that statement to the extent that once you issue the GFE and P-TIL, if you end up actually making the loan, those terms and fees will be correct (barring allowable tolerances) or unless a valid change in circumstances happens.

Agree...agree...agree. That's all it's saying. It has no bearing on anything else other than a commitment to fees disclosed (outside of a COC later on)

You're actually supporting my case, Randy.
I'm saying 'here are the estimated costs for the loan you applied for.'
You're correct that if all goes right, those estimated costs will end up on the HUD.

There is, however, no way that I'm saying what David says and you quote above that (I) would approve the loan with those terms and fees.

To me the distinction between these two things is crystal clear.

This is from the 1998 Federal Register announcing the RESPA rules that went into affect in Jan 2010. This requires lenders to underwrite a loan PRIOR to issuing a GFE so they don't bait and switch:
“HUD determined that this approach provides the flexibility originators need to properly underwrite, while limiting bait-and-switch methods whereby the originator uses the GFE to draw in a borrower and, after a significant application fee is paid or burdensome documentation demands are made, claims that a material change has resulted in a more expensive loan offering”.

The regulation requires lenders to underwrite the loan and then live by what they disclose - unless there's a changed circumstance. If there is no changed circumstance, your final disclosures better match your GFE (within tolerances).

If you aren't underwriting the loan prior to issuing the GFE, how do you know what to disclose? How can your GFE be meaningful and binding. You can't issue garbage. Why wouldn't you want to underwrite (to the extent possible) so you don't back yourself into a corner?

Randy & Truffle: I'm pretty busy today - Tuesday. I'm not ignoring you, but I'm not certain when I will give you a complete reply. Be patient with me and I'll get back to you.

Besides the fact that you are again arguing a HMDA definition by using something from RESPA, that is not what HUD said at all. That sentence is only part of the paragraph in which it appeared. The sentence before the one you quoted in that paragraph says this:

"Furthermore, the loan originator is presumed to have relied on the borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator before providing the GFE. The loan originator cannot base a revision of the GFE on this information, unless it changes or is later found to be inaccurate."

In the paragraph previous to this, HUD stated: "None of the information collected by the originator prior to issuing the GFE may later become the basis for a ‘‘changed circumstance’’ upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE."

It is giving the creditor the flexibility to actually underwrite the loan in any manner it may choose, including at a later time - it does not say that they must underwrite the loan before issuing the GFE.

HUD only indicated that the fees and charges quoted to the applicant cannot change based on a change in the factors that the applicant has already told the creditor under which the creditor has used to determine whether or not a GFE application had occurred.

What a creditor does with the application to ensure their fees are accurate is up to the creditor - but it does not "require" any underwriting. It only prevents the creditor from changing the quoted fees unless there was a change in the particular information or that it was inaccurate.

This discussion is all in the lead up to what would and would not constitute a change in circumstance allowing a creditor to send a revised GFE.

What RESPA really boils down to is:

1. You were required to issue a GFE when you hit the GFE application threshold.

2. HUD didn't really care how or what you thought you needed to rely on to come up with the numbers on the GFE. They really left that decision up to you.

3. Once you quoted them to the borrower, you could only change them under certain conditions (defined change in circumstance).

4. If you other wise changed them, you have a violation of RESPA.

5. If you abide by the change in circumstance rules and still close the loan with fees outside of tolerance, you pay the customer.

None of this has anything to do with underwriting the loan.

Randy's post two above this saved me having to write out the same thing. The quote David keeps falling back on does NOT "... require(s) lenders to underwrite a loan PRIOR to issuing a GFE so they don't bait and switch:...." As Randy said, you're leaving out the meat of the citation in the sentence immediately preceding it.

All of these pages of discussion aside, I stick to Reg C when it comes to reporting action codes on my LAR. Specifically "If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn."

I think we have found the underlying problem with our disunity on this topic! This is actually exciting to me because I know you have all been frustrated with me and it's been frustrating for me to understand why you all don't understand.

Randy said: "None of this has anything to do with underwriting the loan. Truffle said: The quote David keeps falling back on does NOT "... require(s) lenders to underwrite a loan PRIOR to issuing a GFE so they don't bait and switch:...." And Joker said "I don't need to verify anything else, but I've not underwritten nor can I approve the loan until I do!"

I DO believe a lender is required to underwrite what they have available before issuing a GFE. It's not full underwriting. It's not the final underwriting. It's not complete underwriting. It's analyzing and reviewing EVERYTHING you have available at this point. It's making a decision on what you know and what you believe to be true at this point.

Let me make this clear:
The issuance of preliminary disclosures is not a commitment to make a loan. In fact, §1024.7(g) states the GFE is not a loan commitment. A similar reference is found in the Section-by-Section Analysis of the Integrated Disclosures Rule regarding the Loan Estimate. A lender is never committed until the loan is consummated and always has the option to deny an application up until the loan is closed. However, that doesn’t mean the lender hasn’t made a conditional approval when the GFE/LE and Preliminary TIL disclosures are issued. We believe a conditional approval must be made in order to provide binding and meaningful disclosures.

Here's where I pull this from. Once a lender has accepted an application (as defined in RESPA), the lender is required to issue a binding and meaningful GFE [1024.7(f)].

Binding GFE. The loan originator is bound, within the tolerances provided in paragraph (e) of this section, to the settlement charges and terms listed on the GFE provided to the borrower, unless a revised GFE is provided prior to settlement consistent with this paragraph (f) or the GFE expires in accordance with paragraph (f)(4) of this section. If a loan originator provides a revised GFE consistent with this paragraph, the loan originator must document the reason that a revised GFE was provided. Loan originators must retain documentation of any reason for providing a revised GFE for no less than 3 years after settlement.

Beginning in October 2015, the lender will need to issue a LE made in “good faith”. This is supported by the following regulatory citations:

Loan Estimate must contain a good faith estimate of credit costs and transaction terms. If any information necessary for an accurate disclosure is unknown, the creditor must make the disclosure based on the best information reasonably available at the time the disclosure is provided to the consumer, and use due diligence in obtaining the information. [§ 1026.19(e)(1)(i); Comment 19(e)(1)(i)-1]

Creditors are required to act in good faith and exercise due diligence in obtaining information necessary to complete the Loan Estimate. [The Small Entity Guide in reference to the Commentary to §1026.17(c)(2)(i)]

For example, the creditor might look to the consumer for the time of consummation, to insurance companies for the cost of insurance, or to realtors for taxes and escrow fees. [Commentary to §1026.17(c)(2)(i)-1].

Normally creditors may rely on the representations of other parties in obtaining information.
 [§ 1026.17(c)(2)(i)]

However, there may be some information that is unknown (i.e., not reasonably available to the creditor at the time the Loan Estimate is made). In these instances, the creditor may use estimates even though it knows that more precise information will be available by the point of consummation. However, new disclosures may be required under §1026.17(c) or §1026.19. [Comment 17(c)(2)(i)-1]

The RESPA and TRID rules require lenders to review all of the information they have available before they issue a GFE/LE. The TRID rules indicate there is a due diligence standard placed on lenders to get information they need to issue disclosures that are meaningful and represent terms you are willing to offer the applicant. If these disclosures are not as accurate as possible then the lender is risking UDAAP issues (bait and switch tactics).

The RESPA final rule in the November 17, 2008 Federal Register states:
HUD has adopted a single application process for the final rule. Under this approach, at the time of application, the loan originator will decide what application information it needs to collect from a borrower, and which of that collected application information it will use, in order to issue a meaningful GFE. However, before providing the GFE, the loan originator will be assumed to have collected at least the following six items of information: the borrower’s name, Social Security Number, and gross monthly income; the property address; an estimate of the value of the property; and the amount of the mortgage loan sought. The borrower’s Social Security Number would be collected for purposes of obtaining a credit report.

Furthermore, the loan originator is presumed to have relied on the borrower’s name, the borrower’s monthly income, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any information contained in any credit report obtained by the loan originator before providing the GFE.

Additionally, the RESPA section by section analysis specifically states “HUD determined that this approach provides the flexibility originators need to properly underwrite, while limiting bait-and-switch methods whereby the originator uses the GFE to draw in a borrower and, after a significant application fee is paid or burdensome documentation demands are made, claims that a material change has resulted in a more expensive loan offering”.

The same premise will hold true under the Integrated Disclosure requirements, as the Commentary to §1026.19(e)(3)(iv)(A), #3 states “a creditor is presumed to have collected these six pieces of information . . .. ” In a separate discussion on the extent of credit information to be obtained, the Final Integrated Disclosures Rule in the December 31, 2013 Federal Register states, creditors should be able to receive sufficient information from the credit report…to develop a reasonably accurate estimate of costs….

Creditors may only use revised or corrected Loan Estimates when specific requirements are met. Creditors generally may not issue revisions to Loan Estimates because they later discover technical errors, miscalculations, or underestimations of charges. Creditors are permitted to issue revised Loan Estimates only in certain situations such as when changed circumstances result in increased charges. [§1026.19(e)3)(iv)]

This tells us that both rules expect lenders to USE and RELY ON the 6 items and the credit report before issuing the GFE/LE. How? The income and credit report are used to calculate a debt-to-income ratio. The estimate of value and loan amount is used to calculate a loan-to-value ratio. The score from the credit report can also be evaluated. All of these things are used/relied on to give the best GFE/LE possible – a meaningful and binding GFE/LE. Lenders are not to issue a “standard estimate of charges” as it would not meet the “good faith” requirement.

Additionally, Regulation B says lenders are to be diligent in obtaining whatever information they need: The creditor shall exercise reasonable diligence in obtaining such information. [§1002.2(f)] The Commentary to this section even specifically mentions obtaining a credit report diligently.

The regulation defines a completed application in terms that give a creditor the latitude to establish its own information requirements. Nevertheless, the creditor must act with reasonable diligence to collect information needed to complete the application. For example, the creditor should request information from third parties, such as a credit report, promptly after receiving the application . . . [Commentary to §1002.2(f)(6)].

Many applicants voluntarily provide verification documents at the time of application (tax returns, pay stubs, etc.) If a lender has these documents available prior to issuing the GFE/LE, they should review them and prepare a binding GFE/LE in good faith based on all information available. If a lender doesn’t review all of the information they have available, they can’t later use any of that information as a Changed Circumstance.

The loan originator cannot base a revision of the GFE on this information, unless it changes or is later found to be inaccurate. HUD determined that this approach provides the flexibility originators need to properly underwrite, while limiting bait-and-switch methods whereby the originator uses the GFE to draw in a borrower and, after a significant application fee is paid or burdensome documentation demands are made, claims that a material change has resulted in a more expensive loan offering.

None of the information collected by the originator prior to issuing the GFE may later become the basis for a ‘‘changed circumstance’’ upon which a loan originator may offer a revised GFE . . . [Federal Register 11-17-08].

This requirement is also supported in numerous places in the TRID rules.

So back to the original questions:
1. Does the lender make a decision in order to issue the GFE?
We think they have to because the lender is supposed to be reviewing all of the information possible prior to issuing the GFE/LE. They then issue a proposal to the applicant through the P-TIL and GFE / LE. These disclosures aren’t hypothetical. They represent what the lender will do (binding and meaningful), unless later verifications demonstrate the information is inaccurate or new information is provided that allows for a changed circumstance. If everything goes as planned, the P-TIL and GFE / LE will look just like the final TIL and Settlement Statement / Closing Document. There are tolerances and cure provisions, if the early disclosures are not accurate.

2. If the lender doesn’t evaluate what’s been provided and make a decision based on this information, how can the lender issue early disclosures that may represent how the final documents will be designed?
To issue a meaningful and binding GFE/LE in good faith, a decision must have been made about what program, rate & fees are used for the applicant. That IS a decision, although it may be conditional and a preliminary one. The point is, the lender must make a decision and be willing to live with it if there are no changed circumstances.

3. How can we make a decision if we haven’t underwritten the loan yet?
Remember the RESPA final rule in the November 17, 2008 Federal Register states:
“HUD determined that this approach provides the flexibility originators need to properly underwrite, while limiting bait-and-switch methods whereby the originator uses the GFE to draw in a borrower and, after a significant application fee is paid or burdensome documentation demands are made, claims that a material change has resulted in a more expensive loan offering”.

If you believe you haven’t made a decision yet, how do you comply with this requirement to have already underwritten the loan request to avoid bait and switch tactics? The term “underwrite” is not defined, but it’s clear it happens before issuing preliminary disclosures. While it may not be the final underwriting, as used within our industry, the regulation clearly uses this term and requires a decision to offer the best information possible to the applicant before preliminary disclosures are issued.

Now let’s go back to HMDA. The Commentary to §1003.4(a)(7) #4 states:
Action taken—conditional approvals. If an institution issues a loan approval subject to the applicant's meeting underwriting conditions (other than customary loan commitment or loan-closing conditions, such as a clear-title requirement or an acceptable property survey) and the applicant does not meet them, the institution reports the action taken as a denial.

In other words, once the lender receives an application (as defined by RESPA or TRID) the lender underwrites the application request, makes a decision to approve the application and THEN verification occurs. Therefore, when you combine RESPA, Truth in Lending and HMDA together:
1. A lender must underwrite what they know after receiving an application and either denies the request, makes a counter-offer or makes a conditional approval;
2. If the request is conditionally approved, the lender is to deliver meaningful GFE/P-TIL or LE demonstrating what you can offer the applicant;
3. The lender waits to receive an Intent to Proceed from the applicant;
4. Orders verifications to confirm all information, and
5. Makes further decisions and a final decision as verifications are received.

Many of you seem to be saying “That’s not how we do it at our bank” or “Our procedure is to make a decision after we receive all verifications” or other variations of these. We acknowledge that lenders can have different procedures. However, a lender’s procedures must conform to the regulation.

While these are all different regulations, they must still all work together. We’re not saying you can take a term from one regulation and apply it similarly to another. We are saying in order to comply with one regulation you can’t violate another. You won’t find the terms “conditional approval” in RESPA or TRID. However, HMDA uses them and clearly explains a withdrawal can’t occur after a conditional approval is granted (see the FAQs). [I absolutely agree with the last statement in Truffle's last post!]

If you don't believe issuing preliminary disclosures requires a decision, ask yourself “when do we make a decision and how do we document when that decision is made?” HMDA requires all information on the LAR to be supported. How would you support the date of “withdrawal” or “approved not accepted” consistently if you don’t have a way to clearly substantiate when that occurs? Examiners could (and many have) cite your bank for incorrect action codes.

That's certainly enough to chew on for a while. I believe I've supported well why we believe this to be true. I'll be interested in your comments. But as I said in the beginning of this post, I think you can see where we aren't lining up now.

One regulation at a time:

RESPA

Step 1. I do not underwrite a loan and I issue a GFE.

Step 2. I abide by the estimates that I gave the customer on the GFE and only make any changes allowed if I have a change in circumstance.

Step 3. I wait until I get everything I think I need to underwrite the loan and make a deny/approve decision.

Step 4. If approved, I close the loan with no tolerance violation.

Tell me where I am required to underwrite the loan in this scenario and how my GFE would have not been issued in good faith? I can give you estimated fee and charges and abide by them (all my banks do without underwriting) and as long as I close the loan with the fees as disclosed - tell me again how RESPA forces me to underwrite??

But again, that is a RESPA argument and it has no place in the HMDA discussion.

HMDA:

You still have not addressed the issue that even if you thought you needed to do some preliminary underwriting to come up with your GFE estimate, how that underwriting gets you to the point that the only thing left is "solely customary commitment or closing conditions".

In theory: If you issue a GFE without evaluating (underwriting) what the applicant presented (your step #1), and you are able to abide by the estimates that you gave (your step #2), and you close the loan with no tolerance violations (your step #3), then you're fine. But you know that's not prudent. I would think that you of all people - being a former banker for numerous years - know that this is not how it happens in the real world. If you were able to live by what you said even though you didn't underwrite the loan information you had before issuing the GFE, I don't think you would be in violation.

You continue to say: Tell me where I am required to underwrite the loan in this scenario . . .
GFE's are not to be hypothetical. RESPA requires GFE's to BINDING and MEANINGFUL - specific to the applicant. HUD even knows this and said they believe the 6 items and credit report would be enough for "originators need to properly underwrite" an application. There it is again. You continue to ignore this from the section by section analysis that I continue to quote.

As I said in my last post (and supported with regulatory references):
The income and credit report are used to calculate a debt-to-income ratio. The estimate of value and loan amount is used to calculate a loan-to-value ratio. The score from the credit report can also be evaluated. All of these things are used/relied on to give the best GFE/LE possible – a meaningful and binding GFE/LE. Lenders are not to issue a “standard estimate of charges” as it would not meet the “good faith” requirement.

So if an applicant had a credit score of X and a DTI ratio of XX% and a LTV ratio of XX%, the lender offers rates and fees based on this. But if the applicants creditor score was Y, DTI of YY% and LTV of YY%, they offer a different rate/fees on the GFE/P-TIL. How is that not underwriting?

You might have a different definition of "underwriting" in your mind, but why would you not evaluate all of that (plus anything else the applicant provides) prior to issuing the GFE? If you are, I think you're underwriting the loan request. If you don't think I am, show me where it says that this is not underwriting and where it says underwriting occurs.

Then you say: But again, that is a RESPA argument and it has no place in the HMDA discussion.
It absolutely does. Since when do you work in a vacuum? The point is that HMDA references conditional approvals. If you make one, you can't say the application is withdrawn after that. Agree?

I'm pointing to RESPA to show that when you issue a GFE, you have made a conditional approval. How is that not a valid point in this process? In the real world, lenders work with all regulations simultaneously. In the real world Congress and the regulators wrote laws and regulations that must coincide. You can't copy with one law and violate another.

I don't understand what you mean by this statement:
You still have not addressed the issue that even if you thought you needed to do some preliminary underwriting to come up with your GFE estimate, how that underwriting gets you to the point that the only thing left is "solely customary commitment or closing conditions".
I recognize that wording from the HMDA FFIEC FAQs, but I don't follow what you are asking.

You also continue to ignore the question that I've asked 3 times in this string:
If you don't believe issuing preliminary disclosures requires a decision, ask yourself “when do we make a decision and how do we document when that decision is made?” HMDA requires all information on the LAR to be supported. How would you support the date of “withdrawal” or “approved not accepted” consistently if you don’t have a way to clearly substantiate when that occurs?

I have a few comments and then I will retire (again) from this thread.

1. Why would a bank go to the time and expense of underwriting applications for which it has not received an intent to proceed? That could become exceedingly expensive and is certainly not prudent.

2. It is also not prudent to allow those processing an application just received, who are not experienced or authorized to make credit decisions, to determine if an application can go forward within the first three days. Even if there is a low score, there may very well be mitigating factors that an experienced person who will see the application further in the pipeline will notice and factor into the decision.

3. Documenting a file with memos/notes in the system is (or should be if a bank does not do so) standard to memorialize when a customer contacts the bank or when the bank contacts the customer. Calls or emails/letters from the customer withdrawing the application (or any such action) need to be documented...a note written, a copy in the file. The same is true for any communications out to the customer. To not do so is foolish. The bank/financial institution needs to do so to protect itself. Banks I have worked at over the years required this to be done. Properly documented, there will always be "proof" of what happened when. A bank without those processes in place is taking unwarranted risk.