Here's the only guidance HMDA offers about conditional approvals:
http://www.ffiec.gov/hmda/faqreg.htm#action

You'll see nothing about the decision being communicated to the borrower, commitment letters, etc. In fact, the 2nd FAQ states:
"If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn." That code is not otherwise available."

swiggles stated: why would a lender order those if the loan wasn't in at least a conditional approval status? Exactly.

I'm not KB, but all I can say it is not contingent on issuing early or any other disclosures.

Every lending shop is going to be a little different depending on the structure of the credit underwriting function. If you are having a hard time determining a bright line test in your organization, then you have an operational problem and not a HMDA problem. It is pretty simple, the customer has met ALL underwriting or creditworthiness conditions. Not some, not most, but ALL. If you can't determine when that happens in your organization, then how do you ever decide when a loan is approved?

If you have a central underwriting department, unless the loan has made it that far, I can tell you your approval hasn't happened. If you have a central underwriting department and the front line or another centralized function issuing early disclosures, I can tell you approval has definitely not happened by the mere fact that you issued disclosures.

If you happen to get a complete loan package on day one for your underwriters to issue an opinion on, then you might on a rare occasional be able to say an applicant has satisfied ALL underwriting or creditworthiness conditions within the first three business days, but I would expect that would be a somewhat rare occasion.

If you are have problems figuring out a bright line test, then I suggest sitting down and having a chat with your underwriters and figure out when the "ALL underwriting or creditworthiness conditions" are met happens in your organization.

Just because your organization or someone's understanding of the organization has no logical or standardized process to make this determination, picking the issuance of early disclosures as the bright line test is not the answer.

Oh, and if these are all approved but not accepted at the time of the issuance of early disclosures, you better not have any adverse action notices in file for these applications unless they are only referring to customary commitment or closing conditions as defined by the CFPB.

The approval is conditioned upon all the information provided in the application being true, once verified.

You guys have totally misconstrued the conditional part of the requirement. The only conditional thing about it is the customary commitment or closing conditions. You are not allowed any leeway on the underwriting or creditworthiness conditions. Those ALL have to be satisfied.

Back to my second post: "Customary loan-commitment and loan-closing conditions do not include (3) verification or confirmation, in whatever form the lender ordinarily requires, that the borrower meets underwriting conditions concerning borrower creditworthiness."

If an underwriting condition has not been verified and you require it before closing the loan, it is not an approval under HMDA.

I don't understand this statement. An application might be motoring right along towards closing, and at any time (possibly even a day before closing), a piece of information might surface, causing a decline.

A loan is in a semi-state of approval until the customer either withdraws the request or the bank finds a reason to deny it.

I issue early disclosures - if the applicant withdraws sometime before loan closing, I code all such applications as approved but not accepted.

Well, if every application is approved but not accepted once the early disclosures are issued, you must have considered that at the time of issuing the early disclosures that they met all underwriting or creditworthiness conditions. So the loan is already sitting in the "approved but not accepted" bucket. How can you then turn around and say, for example, once you get the tax returns and can't justify the income listed on the application, deny the loan for that underwriting condition - failure to met required DTI?????

Verification documents are not considered customary loan-commitment and loan-closing conditions.

Because the bank orders this as soon as they have intent to proceed, the customer is paying (and the bank collected the appraisal fee or an application fee to cover the cost), and the bank wants to know if there is anything worth talking about.

KB: You still haven't answered my question about when you believe conditional approval is given. Please do.

Randy, 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.

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 [i]“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”.

This tells us that there is an underwriting process that occurs BEFORE the GFE is issued. No one says it's the final underwriting. If they pass the lender's underwriting, a GFE/P-TIL is issued. Therefore, some sort of approval is given at this point.

I don't see why this is such a difficult concept.

David,

Are we talking about RESPA compliance or are we talking about HMDA compliance. The two do not equate. One is a reporting regulation and one (as it relates to the GFE) is a disclosure regulation. Each have their own rules. So let's just pick one regulation to argue about.

Your stance is that by issuing early disclosures under RESPA that you have met the conditions to report the loan as approved but not accepted under HMDA.

That is simply just not the case. A GFE is almost always issued long prior to the applicant meeting all underwriting or creditworthiness conditions required by the lender including the receipt of all verifications or confirmations, in whatever form the lender ordinarily requires.

If you want to talk about the actions that a bank should take and what information should be relied upon prior to issuing a GFE in good faith, then that is a totally separate subject and should be left for another discussion.

Whatever those actions might be under RESPA or the upcoming TRID rules does not normally rise to the level of determining that an applicant meets all underwriting or creditworthiness conditions required by the lender including the receipt of all verifications or confirmations, in whatever form the lender ordinarily requires.

This is not a "point in time" determination. It is not a moving scale. You don't get to reset the underwriting or creditworthiness conditions as the application moves thorough different stages of the application process. There is only one point of time in which this happens.

We need to totally stick to the definitions and regulatory guidance as given for compliance with the HMDA requirements.

You keep saying that "We believe a conditional approval must be made in order to provide binding and meaningful disclosures." Well that may be under RESPA, but as I said, that should be left to another discussion. However, your definition of a "conditional approval" at the time of issuing a GFE does not equate to the definition of "approved but not accepted" under the current FFIEC guidance and the CFPB guidance in the new proposed HMDA regulation. The only thing an "approved but not accepted" under HMDA can be "conditioned" on are "customary loan-commitment and loan-closing conditions".

P.S. I'm done

I am heading out of town to a wedding. If I come back to this it will be next week.

Randy: That's why I said in my original post I didn't think it was good to open this can of worms again. We've discussed this pretty thoroughly in March/April. You give lengthy responses, but never seem to address the regulatory comments and citations I bring up, like the requirement to underwrite a loan BEFORE a GFE is issued.

Yes, I'm talking about HMDA Action Codes, but I'm looking at RESPA too. I agree you can't take a term from one regulation to use in another, but all regulations must work together. You can't violate one reg to comply with another.

It's also interesting to me that you make long comments and then say "I'm done".

KB: You also don't seem to want to address the questions I've asked of you, but you've made two posts since. Odd to me.

I'm not trying to be rude to anyone. I'm trying to point out something that a vocal few here at BOL don't seem to want to acknowledge, but my research on this topic for several months resulted in most everyone agreeing. Again, Carl Pry, Patti Blenden, ABA personnel, several regulators, etc. Just because a few here don't agree, doesn't make it right.

Swiggles presented the logic very well. Again, odd to me that others don't acknowledge it and don't seem to want to respond to her and my questions. We don't need to debate this, but a few of you seem to want to but then won't address the issues presented. So if you'd like to continue to discuss this, please reply to the questions we've asked about when conditional approval happens in your opinion. Then we can have a healthy discussion instead of blasting people and running away.

Then David, I won't "run away". However, I think I have already stated my case plainly and succinctly.

But I only have one question, since you seem to be in the mood of calling people out on this subject.

Why don't you tell everyone the whole story behind why some of your clients were originally criticized and questioned about reporting the HMDA code wrong on their LAR.

You previously told me privately that: "Some of our clients issue letters with the GFE/P-TIL that say “You’ve been approved”. It’s pretty tough to say there’s no decision."

And my response to you was: "Well if they are issuing letters to the applicants saying that they are approved for the loan at the time they are delivering the GFE – then they have more problems than their HMDA reporting."

So, then you turn around and use these isolated findings and try to make this argument that in all cases when you issue a GFE, you have an "approved but not accepted" loan under HMDA, when the fact of the matter is, that is not the point the regulators were making or implying at all.

The regulators were stating that you sent a letter to the customer that they were approved for the loan and since a decision on the loan had already been made and communicated to the customer, the loan could no longer be withdrawn by the applicant.

As far as addressing your regulatory comments, they just don't make any sense. One can't use some interpretation one has made in one regulation (RESPA) to override the clear and bright line test put forth by the FFIEC and CFPB in HMDA, no matter how much one tries.

There is only one fact and one fact alone to examine in this whole convoluted mess and we can just let each individual reading this make their own determination.

When a bank issues a GFE can they say that the loan application is fully approved outside of customary loan-commitment and loan-closing conditions, taking in consideration of the follow:

Customary loan-commitment and loan-closing conditions do not include (1) conditions that constitute a counter-offer, such as a demand for a higher down-payment; (2) underwriting conditions concerning the borrower's creditworthiness, including satisfactory debt-to-income and loan-to-value ratios; or (3) verification or confirmation, in whatever form the lender ordinarily requires, that the borrower meets underwriting conditions concerning borrower creditworthiness.

If the bank answers no, then the application cannot be coded as approved but not accepted on their HMDA LAR.

There is no RESPA argument here. What you do or not do from a RESPA standpoint is absolutely irrelevant when to comes to HMDA reporting and there is nothing in RESPA that requires you to get an application to this point of the approval process before issuing a GFE.

If you care to continue this discussion using only HMDA guidance and definitions, I look forward to it.

So....why does everyone holler about too many withdrawns raising fair lending red flags. If we wait until everything is verified and we are ready to close, to use the approved but not accepted code, we won't have any. Because it's rare for a borrower to withdraw at that point. Our LAR will only have withdrawn entries.

I should think examiners would have an issue with you approving a bunch of loans that weren't accepted. And my question to you, swiggles, remains: How can you approve a loan before everything is verified?

We have more withdrawns than approved but not accepted and it's never been an issue in all the exams I've been through. As long as the file is properly handled and things like the notice of incomplete sent, then you should have some of everything on your LAR without a real preponderance of anything, except originations, of course.

To make any reasonable argument that "withdrawn" must happen within the 3-day window of issuing disclosures, your action date for withdrawn applications would always have to happen within that time period, which makes zero sense.

For an application that was expressly withdrawn by the applicant, you may enter either the date shown on the applicant’s letter or the date that you received the letter or notice.

Nowhere does it state that this could only occur within the initial 3 days. What about the millions of loans not subject to RESPA to begin with?

5 Action taken date—approved but not accepted. For a loan approved by an institution but not accepted by the applicant, the institution reports any reasonable date, such as the approval date, the deadline for accepting the offer, or the date the file was closed. Although an institution need not choose the same approach for its entire HMDA sub mission, it should be generally consistent (such as by routinely using one approach within a particular division of the institution or for a category of loans).

I’ve purposely waited a few days to respond to this post. I’m happy to have a healthy discussion about this topic. I’m not willing to argue and sling mud at each other. In that light:
Randy, you said:

I told you about the experience of ONE client but we’ve also had several that have been cited for this issue (calling an application withdrawn when the regulators believe a conditional approval has been given because disclosures have been provided) that didn’t issue “you’re approved” letters. We’ve also had several more clients that have had discussions with their regulators about this – but not cited.

Further, while teaching HMDA at the ABA School in March, a student brought up this topic. I asked the audience of approximately 340 students if they have had similar discussions with their regulators. About 1/3 of the students raised their hands. Many wanted me to discuss it in detail, but there wasn’t sufficient time there.

As I stated in a previous post, this was brought up at 3 different sessions at the ABA Compliance Conference in June – once by the FDIC during their breakout session.

Your comments make it sound like I’m trying to do something unethical (hiding the full truth, etc.). This topic is not something I created, but rather something I’m trying to react to. We’re in the business of making life easier for compliance officers. That’s what I’m trying to do whether you agree with it or not.

So there’s the “whole story”. We’ve been researching this topic for months, talking to regulators, bankers from around the country and discussing this in depth in our team of 9 consultants. This isn’t something that I dreamt up.

Second, you say:

HMDA clearly says that if a “conditional approval” is granted, you can’t call an application “withdrawn”. HMDA never defines what a “conditional approval” is. However, the FFIEC FAQs do give two answers that illustrate it. The 2nd one states:
If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn." That code is not otherwise available.

Notice this doesn’t say “FINAL DECISION”. It says “a credit decision”. I can easily interpret this to say “ANY credit decision.”

In your last post, Randy, you state:


Nowhere does HMDA say “fully approved”, “final decision”, “preliminary decision” or any other qualifier. I don’t know why you are adding those words (fully approved). It seems VERY clear to me that if you issue disclosures, you have evaluated information about the applicant and made some sort of decision – at a minimum, not to deny the request. Therefore, it would be difficult to argue no decision of any sort has been made. The FFIEC FAQ goes on to say you can’t use “withdrawn” once A decision has been made.

Just to be clear – this is from the HMDA FAQs. We’re not talking about RESPA, TIL or crossing any other lines into other regulations. However, all of these regulations work together. You can’t get in a HMDA silo and just comply with it and then move to the RESPA silo. They work together. I’m not using RESPA to define HMDA’s terms (as explained above with the HMDA FAQ only), but our position paper does support this logic by referencing RESPA.

Where you seem to be the most concerned is the RESPA requirement to underwrite loans BEFORE you issue GFE’s (and there is such a requirement as I quoted 2 posts of mine above). If a bank is required to underwrite a loan to issue “meaningful and binding” disclosures, I once again find it very difficult to argue a bank hasn’t given some sort of conditional approval (the HMDA term).

Now I’m going to stop here. What’s most difficult is trying to respond many of you at the same time. I’m not wishing to ignore anyone’s position or responses. Trying to do so, would require lengthy posts and a lot of time, however. I also won’t continue to dialogue with people that won’t answer questions I pose.

Joker: I'm curious how you make this statement in your last post, but it appears to contract your response this week to the following in a RESPA forum post. The question asked was:
What if the applicant never returns the Intent to Proceed and you would have otherwise approved the loan- do you consider withdrawn for Reg B purpose and "approved not accepted" for HMDA?
You replied to code the loan Approved, Not Accepted" for HMDA. That seems to follow my position.

Here's the post:
http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1997191#Post1997191

Truffle stated:
I should think examiners would have an issue with you approving a bunch of loans that weren't accepted.
Why would examiners have an issue with approving a bunch of loans that weren't accepted? The lender is demonstrating they are willing to offer credit, the borrower shopped around and didn't choose the bank. That's what RESPA/TIL and the new TRID rules were intended to do - inform people so they can shop. That doesn't mean you'll get 100% acceptance. The lender also demonstrates they aren't dragging their feet (discouragement under Reg B).

And my question to you, swiggles, remains: How can you approve a loan before everything is verified?
That's exactly what RESPA and TRID require! The lender is supposed to think "IF this is true, then we could offer this loan at this rate and fees." The TRID rules even require the lender to make assumptions if there's incomplete information. Of course, you verify things - that's prudent underwriting, but it's not compliance and it happens AFTER you issue disclosures.

Again, no one is saying "final approval". HMDA asks for "conditional approval". Conditioned on what? Verification! The FFIEC FAQ on Action Code clearly demonstrate this.

Conditional approvals---failure to satisfy creditworthiness conditions. How should a lender code "action taken" where the borrower does not satisfy conditions concerning creditworthiness?

Answer: If a credit decision has not been made and the borrower has expressly withdrawn, use the code for "application withdrawn." That code is not otherwise available. See Appendix A, I.B.1.d. If the condition involves submitting additional information about creditworthiness the lender needs to make a credit decision and the applicant has not responded to a request for the additional information in the time allowed, use the code for "file closed for incompleteness." See Appendix A, I.B.1.e. If the borrower has supplied the information the lender requires for a credit decision and the lender denies the application or extends a counter-offer that the borrower does not accept, use the code for "application denied." If the borrower has satisfied the underwriting conditions of the lender and the lender agrees to extend credit but the loan is not consummated, then use the code for "application approved but not accepted."

For example, if approval is conditioned on a satisfactory appraisal and, despite notice of the need for an appraisal, the applicant declines to obtain an appraisal or does not respond to the lender's notice, then the application should be coded "file closed for incompleteness." If, on the other hand, the applicant obtains an appraisal but the appraisal does not support the assumed loan-to-value ratio and the lender is therefore not willing to extend the loan amount sought, then the lender must use the code for "application denied."


I've read this section you referenced above, David, at least a dozen times. In my mind, and in my world, there's no way that any kind of approval can occur in the same day to three day time period between taking an application and giving the GFE. You haven't convinced me otherwise. I'm sticking with what my examiners have verified as the way to report. But I appreciate you taking the time and sharing your sources.

Good discussion Truffle and I absolutely see your point. My logic (and that of those that "forced" us to look at this from a different angle) was some sort of credit decision has to be made initially to provide early disclosures. If that's true, then "Withdrawn" is no longer an option.

I appreciate your input. I might be overly optimistic, but our position paper has now been sent to the CFPB and to numerous field examiners in hopes that it works it way to the top. Hopefully, we can get some sort of uniform, regulatory stance on this issue.

Amen, brother! That would be awesome. I'm sure you will keep us posted....just in case the CFPB doesn't.

One other aspect that I don't believe we've touched on in this lengthy discussion is online applications.
I'm reviewing a file now that has the following at the bottom of the early disclosures.


No human has set eyes on the information submitted. The disclosures were computer generated. Yet if I'm understanding David's contention correctly, this loan would be coded approved but not accepted if nothing further happened and the borrower withdrew it. The thought of computers giving conditional approvals is mind boggling to me.

How? Because they stated they would have otherwise approved the loan. The prospective customer never showed back up and didn't send a notice to withdraw (before an apparent decision had been made)...so since an apparent decision had been made, then it was approved, but was never accepted (originated).

Can I sidetrack slightly? How does everyone document a withdrawal? Do you try to get the borrower to send something in writing? If by phone, does the officer just document that the applicant withdrew by phone? Does anyone document the reason for withdrawal? If the applicant has provided all pieces of info and early disclosures have been provided and then the lender can't get the applicant to respond to phone calls etc....just document that fact and call it withdrawn (or possibly approved but not accepted)?

If this needs to be a separate discussion, I will start one.