Not that any of you care for my opinion....or really anything else I have to say.....but I appreciate this discussion and have enjoyed reading it. I'm glad all of you provide your opinions on BOL as the opinions are very valuable to me.

I do have 2 straight-forward questions, David. Since you covered Q2 above, I'll skip that...but what was your point or reasoning for this wording [see below]:

Here's how the article closed. If you disagree, you need to consider this:
Our position is really a “bright line test”. If you accept this position, you can’t go wrong. An examiner is not going to cite a bank for saying, “when we issue preliminary disclosures, we believe we have made a conditional approval. Therefore, if the applicant doesn’t proceed or wants to withdraw after this action but prior to an intent to proceed, we code it ‘approved, not accepted”. We believe it is a clear and consistent approach and is well documented and supported.


Your stance has been that you have a "conditional approval" before you issue your GFE. What would it matter then, about the time period between issuance of disclosures and 'intent to proceed'...that would be moot, would it not? Why is it referenced that way?

And one last question I asked earlier that I don't believe was ever addressed. This entire position is based on RESPA. What about all of the HMDA reportable loans that do not fall under RESPA? If a bank's problem is documenting when an approval is actually done/happens/whatever, how are they handling these deals?

One more comment, and I'll be done (I think!). In order for a borrower to know what conditions are being made, you must communicate with them so that they either 1)don't comply and become denied or become and incomplete file or 2) comply and get approved or denied.

Without a written (or otherwise communicated and documented) commitment, conditional or otherwise, you really don't have one. Not really.

And yes, Swiggles...it's been a good debate!

I think I know what you're asking (but not certain). If I miss it with my response, please ask again.

If an applicant doesn't give an intent to proceed, it can easily be seen as the applicant withdrawing the request. Either in this string (or the previous similar discussion in March/April), some were saying they consider it "withdrawn" until the borrower gives the intent to proceed. I'm trying to emphasize that approval is not in the hands of the borrower. It's in the hands of the lender. It occurs when the lender (or decision maker) decides they can make this loan and prepares a GFE/P-TIL to represent the "offer".

Your point (I think) that it could continue to be "approved, not accepted" after intent to proceed is received is true. It depends on what happens. It could also be a denial, closed for incompleteness or counter-offered (which may result in a denial, as well). But if you issue a GFE/P-TIL & don't get Intent to Proceed from the applicant, I think the only action code is "approved not accepted". The lender shouldn't be issuing a GFE and then denying, counter-offering or saying "closed for incompleteness" during that window of time.


(Again, I THINK I know what you're saying - but please reply if I'm missing this)

Most banks issue a cover letter with the early disclosures. The letter explains what's enclosed (early disclosures) and what needs to happen next (borrower provide a deposit, verifications, etc.). I don't think you have to call that a written commitment, but it serves as the written communication you describe.

This is the area that I think most people are getting hung up on. Some say "that's not how we do it at our bank". While that may be true, my point has been I don't think you have to communicate "approved" to the applicant. You have internally given a conditional approval when you issue the disclosures.

I'll close with this statement again:
If you accept this position, you can’t go wrong. An examiner is not going to cite a bank for saying, “when we issue preliminary disclosures, we believe we have made a conditional approval." What's the risk of taking this position? it is a clear and consistent approach and is well documented and supported. The problem with any other position seems to be "when do you consider the application "approved"? That's the whole crutch of our position.

Good discussion!

Thanks David, I think you interpreted what I was asking correctly.

I can see how your closing argument would be hard for an examiner to take issue with simply because the bank would be stating 'we believe we have made some sort of 'approval'. They really cannot argue that....even if it's not true.

We report based on facts. You are either 1) denied 2) approved or 3) in process and yet to be determined.

I still would like for you to opine on the following question, based on your position paper:

And one last question I asked earlier that I don't believe was ever addressed. This entire position is based on RESPA. What about all of the HMDA reportable loans that do not fall under RESPA? If a bank's problem is documenting when an approval is actually done/happens/whatever, how are they handling these deals?

Sorry Joker. I didn't mean to ignore your last question. I got caught up in the other responses and forgot to include a response to this. I did, however, answer this (or so I thought) on a 7/30th post (#2030961) where I said:

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.

You are correct with your last sentence about documenting when an approval is actually done - no matter if it is subject to RESPA or not. Banks will need to have a way to demonstrate this in all loans subject to HMDA.

"RESPA also requires a bank to underwrite a loan PRIOR to issue a GFE (as I have quoted from the Federal Register). "

You have not quoted that from the Federal Register, so I really wish you would quit saying that. It may be how you have misinterpreted one single sentence in a 86 page Federal Register release, but HUD did not and has never said that and neither has the CFPB. Please stick with the facts.

Agree. Totally taken out of context, which may be why the Bureau took away that 'extra flexibility' when drafting TRID. We get limited, basic info but yet must still produce meaningful disclosures. It's on us to be able to do that and it has nothing to do with a time frame. Disclosure are due out in 3 days. We can't do much else until Intent is received. Unless it's a slam dunk denial, it's just a loan in process.

Wow Randy! We can have a healthy discussion (and thought we were), but when you say “you have not quoted the Federal Register”, I interpret that as calling me a liar. You can have your opinion and don't have to agree with me (I've made that clear). Once again, I will quote from the FR and NOT from just one single sentence, so that you can see exactly what it says. You can look all these up yourself here:
http://www.gpo.gov/fdsys/pkg/FR-2008-11-17/pdf/E8-27070.pdf

From page 28211 of the 11/17/08 FR:
Industry representatives questioned HUD’s legal authority to: limit information originators can request to underwrite a loan;.
This is referring to the information (limited) prior to issuing the GFE.

From the same page of the FR:
In order to prevent over burdensome documentation demands on mortgage applicants, and to facilitate shopping by borrowers, the final rule specifically prohibits the loan originator from requiring an applicant, as a condition for providing a GFE, to submit supplemental documentation to verify the information provided by the applicant on the application. Loan originators, however, can require applicants to provide such verification information after the GFE has been provided, in order to complete final underwriting.

So there's underwriting prior to issuing the GFE, AND there's final underwriting. The terms “underwriting”, “preliminary underwriting” and “final underwriting” are used numerous times in the final rule. They are clearly distinct and different if you’ll read and try to understand it.

Also from page 68212: This is discussing FINAL underwriting after the GFE is issued. It supports the idea that there is preliminary underwriting before the GFE is issued.
After the GFE has been received, the loan originator may collect additional fees needed to proceed to final underwriting for borrowers who decide to proceed with a loan from that originator. As noted, at that time, verification information or any other information could be required from the applicant, such as bank statements and W–2 forms, to confirm representations made by the applicant in the application.

This next paragraph is on the same page of the FR and discusses information collected prior to issuing the GFE and how it can and can't be used as a changed circumstance. This also indicates an originator is to have done underwriting prior to issuing a GFE and then discusses final underwriting when verifications are received:
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. A loan originator would have the burden of demonstrating nonreliance on the collected information, but may do so by various means, including through, for example, a documented record in the underwriting file or an established policy of relying on a more limited set of information in providing GFEs.

And again from the same page of the FR. The context is about underwriting the loan prior to issuing the GFE so that the originator doesn't bait-and switch later.
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 that doesn't line up with your interpretation, read this from page 68265 in the same FR. This CLEARY says the originator has to underwrite a GFE:
• HUD has adopted a streamlined single application process for the final rule. The new definition will allow loan originators more flexibility in determining the information they need to underwrite a GFE.

From page 68264. This is discussing the compliance costs to applicants and originators by adopting this new rule.
It would be reasonable to assume that in the high-application scenario, where there is an increase in preliminary underwriting costs, that the cost of an initial credit report would be passed on to all applicants.

From page 68266. This quote not only supports our position that the originator must conduct a preliminary underwriting, it also explains how the fees on the GFE must be "firm".
Some lenders were concerned about their ability to produce firm cost estimates (even of their own fees) within a three-day period, given the complexity of the mortgage process. Lenders wanted clarification on their ability to make cost adjustments as a result of information they gain during the full underwriting process.

From page 68269 – a discussion about underwriting costs to prepare the GFE:
A second criticism of the analysis of the compliance cost of the GFE is that HUD does not consider the possibility that the rule could increase the administrative costs to loan originators by generating a greater demand for GFEs. Although HUD believes that it is just as likely that applications do not increase, HUD has included a sensitivity analysis of compliance costs by the number of applications. (See Section VII.D.2.)
The NAR points to another cost not included in the IRFA: the cost of preliminary underwriting.
You’ll find many more references to the term “preliminary underwriting” and the costs of preparing the GFE in the Compliance Costs Analysis on page 68276.

If you still don’t get it, turn to page 68278 of the FR. There’s a heading entitled “Multiple Preliminary Underwriting”. It states:
Comment. Every application under the new rule requires preliminary underwriting. Since borrowers who shop may seek out multiple GFEs, there will be multiple underwritings. Commenters said this will add to the underwriting burden firms incur today. The National Association of Realtors calculated an additional cost of multiple underwriting at $30 per loan for an application per loan ratio of 2.7.

Response.Every application under the final rule that generates a GFE will require preliminary underwriting in order to come up with an early offer for the borrower. Originators can charge a fee for issuing a new GFE limited to the cost of a credit report. It 
is hoped that the charge for this, if any, would be small enough so that it is not a significant deterrent to effective shopping. But whether or not there is a charge, there are real resource costs associated with preliminary underwriting. The additional cost generated depends on the number of applicants and the number of GFEs they receive. Since every completed loan eventually gets underwritten in full, the additional cost of preliminary underwriting depends mainly on the number of additional times that preliminary underwriting occurs beyond the one associated with the full underwriting that would have occurred under the existing scheme.

Read the first sentence of the Comment again. The new rule “REQUIRES preliminary underwriting”. (Still think I’m misquoting this?) Then read the 2nd sentence of the Comment. This clearly states that borrowers that shop will be making multiple banks underwrite. If underwriting doesn’t occur until after the GFE is issued and Intent to Proceed is given, why would this be? It wouldn’t! HUD is saying they realize every creditor will be underwriting the application to issue a GFE. Therefore, there could be “multiple underwritings” for the same borrowers that go to multiple creditors.

Read the first sentence of the response again. In order to produce a GFE, the lender is REQUIRED to conduct PRELIMINARY UNDERWRITING. Then it says (in the 6th sentence), there is “full underwriting”. This paragraph makes it very clear that the current regulation (prior to the 2010 change didn’t require preliminary underwriting (see the last sentence). The new RESPA does require underwriting prior to issuing the GFE.

Want more proof? Page 68279:
Under the final rule, preliminary underwriting should decrease the number of applications that go to full underwriting (e.g., an applicant may be denied during the preliminary without having been charged for an appraisal); that is, some of the 8.75 million that are not originated may be disapproved at the preliminary stage rather than going through full underwriting (as they might today). This savings in appraisal, verification, and other incremental underwriting costs that are avoided would tend to offset the increase in cost resulting from the extra preliminary underwriting noted in the above paragraph.

There are 10 places on this page alone where the terms “preliminary underwriting” or “additional underwriting” are used referencing evaluations before the GFE is issued. They also use the term “final underwriting” or “full underwriting” 6 times on this page of the Federal Register to refer to evaluations after the GFE is issued.

So Randy & Joker. Do you think I’m still missing it? Do you think I’ve taken this out of context? Do you really think RESPA doesn’t say originators need to underwrite before issuing a GFE? If so, what does all of these mean? Please reply and let me know your thoughts.

Moving to TRID: This only gets more concrete. As Joker said, the CFPB is taking away even more flexibility, which makes my position even stronger. Originators will need to assume things and underwrite based on what they have and their assumptions prior to issuing the LE.

I can't wait to hear from you.

Yes, I do still think you are missing it. Here is a blurb that to me, explains the difference fairly well. It comes from 68211 and differentiates between underwriting an 'application' vs underwriting a 'mortgage'. A preliminarily approved 'application' simply means the type of loan requested is something that can be provided and disclosed...and then once intent is received can be moved into the 'mortgage/loan' end of things. That is the difference if you ask me.

Industry representatives also
requested that HUD permit borrowers to
expedite the application process and
proceed to the mortgage application
stage, when the borrower so desires due
to timing or other concerns.
Industry representatives stated that
the new application definitions in the
March 2008 proposed rule would
present uncertainty in complying with
other mortgage-related statutes and
regulations. They commented that
compliance with other statutes and
regulations is triggered by a mortgage
‘‘application.’’ Because HUD’s proposal
included both a ‘‘GFE Application’’ and
a ‘‘Mortgage Application,’’ they
commented that it is not clear which
one is the ‘‘application’’ for purposes of
compliance with other regulations. In
particular, lenders expressed concern
with the possibility that the ‘‘GFE
Application’’ would trigger compliance
obligations under FCRA, ECOA, HMDA,
and the TILA requirements. They
requested that ambiguities surrounding
compliance with these statutes and
other laws be addressed to provide
clarity and mitigate litigation exposure.
For example, one lender noted that to
calculate the spread for high-cost loans
under Regulation Z and many state
predatory lending laws, the index used
is based on the month in which the
‘‘application’’ for credit is received by
the creditor. This lender stated that it
was not clear from the proposed rule
whether the GFE application is an
application for purposes of Regulation
Z.

Missed part!

Industry commenters expressed
confusion about preamble statements
regarding whether HMDA or ECOA is
triggered by the GFE Application. They
indicated that the preamble stated that
whether HMDA or ECOA is triggered by
the GFE Application should be
determined under Regulations C and B,
as interpreted by the Board. They noted,
however, that the preamble stated that
based on consultations with the Federal
Reserve Board, TILA disclosures would
be provided within 3 days of a written
GFE application unless the creditor
determines that the application cannot
be approved on the terms requested.
The commenters further noted that the
Regulatory Impact Analysis states ‘‘[t]he
proposed rule clarifies that only the
mortgage application would be subject
to Regulations B (ECOA) and C (HMDA),
which is the current situation today.’’
These commenters requested
clarification of this matter.
Industry representatives questioned
HUD’s legal authority to: limit
information originators can request to
underwrite a loan; require that
originators accept an abbreviated
application from which to complete a
GFE; require a new GFE when a
counteroffer is made; and require a
consumer to be notified within one
business day of a lender’s decision to
reject an application, among other
concerns.
Additionally, one lender commented
that under HUD’s March 2008 proposed
rule, lenders would be required

and this may be further clarification.

Once the applicant submits to the
loan originator all the mortgage
application information deemed
necessary by the loan originator to
process the GFE, the originator will be
required to deliver or mail a GFE to the
applicant within 3 business days. HUD
is now also limiting the fee that may be
charged for providing the GFE,
consistent with the Federal Reserve
Board’s recently finalized rule limiting
the fees that consumers can be charged
for the delivery of TILA disclosures.
After the GFE has been received, the
loan originator may collect additional
fees needed to proceed to final
underwriting for borrowers who decide
to proceed with a loan from that
originator. As noted, at that time,
verification information or any other
information could be required from the
applicant, such as bank statements and
W–2 forms, to confirm representations
made by the applicant in the
application.

Joker: What you are quoting from (page 68211) in your first paragraph of your first post is addressing the proposed rule. The FR is saying they didn't accept this because of the issues raised. Then the FR goes on to state what they did put in the final rule. Read the section called "HUD Determination" on the bottom of the 2nd column of the FR on page 68211.

Did you read the quotes I gave from pages 68278 and 68279? Where it states "Every application under the new rule requires preliminary underwriting."?

There's a lot on the table right now. Let's discuss one thing at a time. I'm simply trying to show you where it says the originator must underwrite what they have before issuing the GFE - that's why you and Randy challenged me today. We can get to how this applies to HMDA later.

Your second post references "final underwriting". I'm not disputing that. I'm stating that the originator must do preliminary underwriting before issuing the GFE. THEN they do final underwriting when verifications are received.

I get it David, but the concept truly didn't change. Preliminary underwriting of multiple applications as compared to loans is discussed heavily in the section you refer to. Obviously you are going to weed out some in that stage due to poor credit or terms that are not available. However, that is not the same as the credit "full" underwriting process to arrive at an 'approved' status, subject to nothing more than closing conditions.

I will end this with the following from the final rule section:

As noted, this public policy is further
supported by the Federal Reserve Board
through its recently issued final rule
limiting fees that can be charged for the
delivery of the TILA disclosure. Under
this rule, borrowers must receive the
TILA disclosure before paying or
incurring any fee imposed by a creditor
or other person in connection with the
consumer’s application for a closed-end
mortgage, except that creditors may
charge a bona fide and reasonable fee for
obtaining the consumer’s credit history.
Whether an application under a
particular set of facts triggers ECOA or
HMDA requirements must be
determined under Regulation B or
Regulation C, as interpreted by the
Federal Reserve Board’s Official Staff
Commentary.

Let's just say there is a world of difference between a 'preliminary approval' vs an 'approved loan' subject to only closing conditions.

that is not the same as the credit "full" underwriting process to arrive at an 'approved' status, subject to nothing more than closing conditions.
I've never said it was. In fact, I've stated this preliminary underwriting is a "CONDITIONAL approval" - not FINAL approval and that's the tie to HMDA.

The quote in your last post basically says an application can be different for Reg B & Reg C. I don't disagree. Again, my only point is that RESPA clearly states a lender must do a preliminary underwriting prior to issuing a GFE. If they do, I think it's very easy to say that they have given conditional approval. If they have, HMDA says, you can't use "withdrawn" anymore.

Let's just say there is a world of difference between a 'preliminary approval' vs an 'approved loan' subject to only closing conditions.
Let me chew on that. I'm not disagreeing. I don't know that I'll get back to this today.

Good discussion Joker!

I'm still interesting in hearing from Randy - whether he thinks the 2008 FR doesn't require underwriting prior to issuing a GFE.

Joker: Back to your comment saying: Let's just say there is a world of difference between a 'preliminary approval' vs an 'approved loan' subject to only closing conditions. I agree there is a world of difference between preliminary and final approval. Let me address that and the "closing conditions" part of your comment.

I hope you're seeing that RESPA does require a lender to do a preliminary underwriting of the loan request as I showed with the numerous quotes from the 2008 FR. Probably the strongest being:
Every application under the final rule that generates a GFE will require preliminary underwriting in order to come up with an early offer for the borrower.

If you agree with that, then I hope you can understand my interpretation that this is a conditional approval. IOW, the purpose of underwriting the request (as required) is to arrive at a decision to make or not make the loan. Again, I'm not saying it's a final approval - it's a preliminary (conditional) approval.

I also agree that RESPA and HMDA have different definitions of application, as you were pointing out in your last post. I think it's very clear that if you have an application for RESPA, you most certainly have an application for HMDA (assuming it meets the collateral and purpose components of HMDA). I can't think of one scenario where I would say "I have an application for RESPA, but don't for HMDA", based on the information given by the applicant. Maybe you can. So let's look at the HMDA FAQs again:

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."

The example given in the last paragraph is outdated (customers can't order their own appraisals anymore), but the point is the same. If the lender has not made a decision and the borrower withdraws, it is coded “application withdrawn”. But once a decision is made (even conditional), that code can’t be used. It can be "denied", the lender can issue a counter-offer or it could be coded "approved, not accepted."

So let's put it all together:
1) You have to underwrite the request to issue the GFE,
2) If you decide to give a preliminary approval, I think that's equivalent to a conditional approval for HMDA.
3) HMDA says if you've given a conditional approval, you can't call the application "withdrawn" from that point on.

THAT is what I've been trying to say since day 1. If I understand you last few posts correctly, you're struggling with my logic of the term "conditional approval" as used in HMDA based on the preliminary underwriting requirement in RESPA. If this doesn't make sense to you now, please let me know why and where the logic breaks down.

Once again, I know this is a paradigm shift in thinking - it was for me too. But the more I look at it, the more it actually makes sense.

Randy: Still waiting to hear from you. Not trying to be argumentative, but your last post said RESPA doesn't require underwriting prior to issuing a GFE. Do you agree that it does?

Okay, I re-read the entire section entitled: B. Changes to Facilitate Shopping
1. New Definitions for ‘‘GFE
Application’’ and ‘‘Mortgage
Application’’ beginning on page 68210 of the 2008 FR.

I still do not draw the same conclusion that you have, David. It depends on just how far you go (or don't go). All they did was get rid of the bifurcated application process.

It all still goes back to the fact that you must use those few pieces of information along with (or not) a credit report in order to do the piece of underwriting that determines:

1) that the application is for a consumer closed-end loan secured by a 1-4 family residence
2) that the loan request will be for the purchase, refinance or home equity-type of loan

so that the lender can verify that the application is for a type of loan that the originator actually originates.

Once that is determined, along with the credit score/report, if needed, to determine appropriate rates/terms to be offered, you have enough information to generate a meaningful GFE of which cannot be changed later based on any of that early information, while at the same time not overly burdening the applicant while they are in the 'shopping' phase.

The "underwriting" could stop at that exact spot. There is no mandate that the loan be 'preliminarily approved at that point subject to verification.

You couldtake it to that level...but you certainly don't have to. You just have to make certain that you know what type of loan John Doe wants and that you have that product available in order to generate a GFE that is accurate.

Beyond that, you'd better live with what you offered unless it changes due to something later on that has nothing to do with the early required information.

We do it daily, but I can guarantee you...other than perhaps running a DTI off of stated income and calculating a probable LTV...that's all we do that early in the game. And all of that is in an effort to generate an accurate GFE...not to conditionally (or otherwise) approve a borrower.

However, we do strive to deny a borrower during that period if it's a request that just won't fly.

I truly believe it is 'lender specific' as to just how far you go, or need to go, during this early stage.

You are correct that they got rid of the bifurcated application process.

I'm confused about what you're not following in my conclusion. It sounds like you agree that a lender must conduct a preliminary underwriting but disagree about the level of underwriting that must be performed. Is that correct?

If so, here's a portion of the long post I made on 8/1st - earlier in the string:

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. [/i]

Let me stop and give you my opinion on this:
This tells us lenders are expected to USE and RELY ON the 6 items and the credit report before issuing the GFE. 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 possible – a meaningful and binding GFE.

Again, do you agree with this part so far?

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…."

From reading your post, I think we're in agreement so far, but it's the "preliminary approved" part that separates us. Is this right? Let me stop there and see if you agree with this part or where we might differ.

Pretty much, yes. I do agree. Where we are disagreeing has everything to do with actual context.


We are presumed to have the six pieces allowed and cannot later change anything that is based on those six pieces. It does not mean you are conditionally approving a loan. At best it means you are approving the application, itself, as a request for a product that you can disclose to a prospective borrower.

Great. I see where we are in agreement and not. That helps.

In your last post, you said "At best it means you are approving the application . . ."
If you agree you are making an "approval", then why is it wrong to call this a "conditional approval"? I agree you are approving the application. To me that's a CONDITIONAL approval. We're not saying "for sure". We're saying "looks good based on what we have, but there's a lot more to review, so it's approved conditionally." If it is a conditional approval, HMDA says you can't use the action code "withdrawn" anymore.

So it really boils down to the definition of "conditional approval", which is not defined in HMDA. If I understand correctly, we all agree a lender:
1. Must do a preliminary underwriting of the loan prior to issuing the GFE;
2. They use and rely on all of the information they have available at that point to conduct the preliminary underwriting; and
3. No changed circumstances can occur based on this information unless it is later found to be inaccurate.

You don't believe this action is a "conditional approval" and I believe it is. That's really the crux of this whole discussion. Right?

The Commentary to 1003.4(a)(8)-4 states:
4. 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.

This commentary uses the words "A LOAN APPROVAL" (not final approval) and then says "subject to meeting underwriting conditions. So this approval decision came BEFORE the final underwriting. This ties right into the RESPA requirement to conduct a preliminary underwriting to issue a GFE. It's an approval before final underwriting occurs.

I also believe this meets what HMDA is referring to as a "conditional approval" because the FFIEC's HMDA Action Code FAQ describes what a conditional approval is, without technically defining it. Here is the FAQ:

Conditional approvals---customary loan-commitment or loan-closing conditions. The commentary indicates that an institution reports a "denial" if an institution approves a loan subject to underwriting conditions (other than customary loan-commitment or loan-closing conditions) and the applicant does not meet them. See comment 4(a)(8)-4. What are customary loan-commitment or loan-closing conditions?

Answer: Customary loan-commitment or loan-closing conditions include clear-title requirements, acceptable property survey, acceptable title insurance binder, clear termite inspection, 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. See comments 2(b)-3 and 4(a)(8)-4. An applicant's failure to meet one of those conditions, or an analogous condition, causes the application to be coded "approved but not accepted." 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.

This FAQ uses the term “underwriting conditions” but then separates them into two groups. Let’s separate the terminology used in this FAQ:

1. Loan-commitment / loan–closing conditions include things like clear title requirements, survey, and inspections. These are property conditions that are not typically ordered before issuing a GFE. These do NOT include “creditworthiness conditions” (LTV, DTI, etc.) as stated in the last sentence of the FAQ. If one of these specific conditions becomes a factor that does not allow the loan to be closed, report the application as “approved not accepted”.

2. Creditworthiness conditions are the consumer’s conditions. The lender can review and evaluate the loan-to-value and debt-to-income ratios from the application requirements of the lender (6 items and credit report). They have already been provided and should be reviewed and relied on prior to issuing the GFE - as RESPA requires this as we have already discussed in the exchange about the requirement to do preliminary underwriting.

This FAQ says a lender has made a “conditional approval” subject to loan-commitment or loan-closing conditions. The FAQ also implies creditworthy conditions (LTV, DTI) should have already been completed and therefore a credit decision (approval) was made. Isn't that what you are saying too? That’s also why the commentary states you deny a request when a loan is approved and then the creditworthy conditions don’t match what was previously relied upon. If the consumer’s creditworthiness doesn’t “check out”, the application is coded as a denial.

This has been a good discussion and as I started out saying - we're seeing where we line up and where we disagree. I'll admit, there isn't a clear cut answer. I'm benefitting from the discussion and I hope you (Joker) as well as others are too. Thanks!

Okay, I'm going to take this and break it out from how I see and how most banks I'm aware of operate at this early stage in the game. [Having been a Mortgage Originator for many years prior to the insanity of compliance, I'm also speaking from a hands-on POV].



I hope all that lined up properly and is easy to pick out. We may end up agreeing to disagree on this, but from a banker's standpoint, I stand firmly when I say few banks dole out conditional approvals during the GFE phase. It's just not smart business nor is it practical in that time period to get it to an authority who can make a real decision on the loan...the application's viability is another story.

^^^This and

^^this equals HMDA action taken code at this point will be denied or withdrawn or closed for incompleteness. Originated and approved but not accepted cannot happen yet.

TR, to be accurate, I did add to that last section quoted before I realized you had chimed in to:

Without a written or otherwise communicated commitment or some form of approved status, you do not have an approval in any shape..

Reason being, in a very informal shop, or just based on timing of events, you could have an approval before that approval is communicated to the borrower and if the borrower changes their mind between those two events, it would still be ANA.

Small detail, but an important one.

Our examiners helped us draw the line with the 'communicated' part. The definition we worked out with them came down to if the borrower doesn't know you approved it, they cannot opt to not accept it. So, no communication = withdrawn.

There's a lot to comment on from Joker's post (2 above). However, let me jump to the last comment by Truffle (and I believe Joker agrees with Truffle's comment):

"Our examiners helped us draw the line with the 'communicated' part. The definition we worked out with them came down to if the borrower doesn't know you approved it, they cannot opt to not accept it. So, no communication = withdrawn."

Both of the Action Code FAQs repeatedly state "a decision has been made". They never say "and it is communicated to the applicant". I think saying "we haven't communicated that to the applicant is a leap that isn't supported in any regulation, commentary, FAQ, etc.

Truffle says "if the borrower doesn't know you approved it, they cannot opt to not accept it. . .."
1) You say you APPROVED IT. How is that not an approval?
2) HMDA Action Codes aren't reliant on what the borrower knows and then dictates to you. The Commentary defines when to call it dependent on lender and borrower action. For instance, if the lender say "we can make this loan" and the borrower says "never mind, we're withdrawing", it's NOT a withdrawal. If the lender says "I can't do this, but I could do that" (counter-offer) and the borrower says "never mind", it's not a withdrawal, it's a denial. The borrower's words are not the test to determine regulatory reporting.

Can either of you show me where the communication part is supported in a regulation - not "our examiners told us."?

Interesting. Our stance at every bank I've worked at FRB or FDIC went with what the file status was at the time of the borrower changing their mind.

Anyway, it's never been an issue I've had to argue.