I was wondering about that part, hmdagal.

I think documentation is key there. To me, it's usually fairly obvious.

We have a checkbox in our LOS

Late to the party, but swear I commented on a similar thread. I thought the 2018 amendments or some other official guidance made it more clear that if you counteroffer and they accept but the loan does not result in an origination, they you code as "approved not accepted" depending on the circumstances of what conditions remain, but I am not finding it at the moment. That was always my take previously and agrees with the interpretation by the various Regulators mentioned earlier in the thread (I was an examiner, so maybe that is why I felt the same way, lol).

From my understanding, you have to look at the counteroffer as a "new" application to a point. Once you counteroffer and the borrower accepts, then the reporting is now based on the counteroffer loan. So, if they don't meet credit criteria for the counteroffer loan or the collateral ends up being unacceptable at some point, then you report a denial for those reasons. Similarly, if they were approved and only had customary closing conditions to meet, then I would code as "Approved not Accepted." If there were still more than customary closing conditions for the counteroffer loan and they withdraw before those are met, then you would reports as a "Withdrawal," etc.

There was clarification in the Technical Changes that came out in August. I copied the entire discussion if anyone is interested, but the part in red instructs us to report the terms of the counter offer if the applicant agrees to proceed with the new loan terms.


4(a)(8)(i)
Section 1003.4(a)(8)(i), as adopted by the 2015 HMDA Final Rule, requires financial
institutions to report the action taken on covered loans and applications, and comment 4(a)(8)(i)–
9 explains how to report the action taken when a financial institution makes a counteroffer to
lend on terms different from the applicant’s initial request and the applicant does not accept the
counteroffer or fails to respond. Comment 4(a)(8)(i)–13, as adopted by the 2015 HMDA Final
Rule, provides guidance on how to report the action taken for different scenarios in which a
conditional approval occurs. The Bureau proposed to clarify the guidance on reporting action
taken for counteroffers, including its relation to the guidance on reporting action taken on
conditional approvals.
The Bureau recognized that revised comments 4(a)(8)(i)–9 and 4(a)(8)(i)–13 may be read
as in tension regarding how to report the action taken on an application for which a counteroffer
is made, the applicant expresses interest in the new terms, and the financial institution provides a
conditional approval to which the applicant does not respond or which otherwise does not result
in an originated loan. Comment 4(a)(8)(i)–9 could be read to require the financial institution to
110 Id. at 66180.
70
report the action taken as a denial on the original loan terms applied for, while comment
4(a)(8)(i)–13 could be read to require the action taken to be reported as a denial, file closed for
incompleteness, approved but not accepted, or application withdrawn, depending on the
circumstances. In addition, the Bureau believed that limiting the reportable actions taken for
counteroffers to only covered loan originated or application denied might lead to less complete
and accurate reporting.
In addressing inquiries raising this concern, the Bureau had provided informal guidance
that a financial institution should follow comment 4(a)(8)(i)–13 when an application for which a
counteroffer is made is followed by a conditional approval that does not result in an originated
loan. In accordance with this informal guidance, and to address the need to provide a full range
of options in reporting the action taken on an application when there is a counteroffer, the
Bureau proposed to amend the language of comment 4(a)(8)(i)–9 to broaden the possible actions
taken that could be reported. The Bureau proposed to clarify that, if the applicant agrees to
proceed with consideration of the financial institution’s counteroffer, the counteroffer takes the
place of the prior application, and the financial institution reports the action taken on the
application under the terms of the counteroffer]. In addition, the Bureau proposed to illustrate
this interpretation by providing an example in comment 4(a)(8)(i)–9. The example would clarify
that, if a financial institution makes a counteroffer, the applicant agrees to proceed with
consideration of the counteroffer, and the financial institution sends a conditional approval letter
stating the terms of the counteroffer, the financial institution reports the action taken on the
application in accordance with comment 4(a)(8)(i)–13 regarding conditional approvals.
Five industry commenters expressed support for the changes to comment 4(a)(8)(i)–9,
and three industry commenters expressed opposition. One commenter who expressed support
71
for the changes stated that the guidance would ease the difficulties of reporting by allowing
financial institutions’ systems to reflect more accurately the specifics of the loan file at the time
of final action without requiring additional fields.
One commenter who expressed opposition to the changes preferred that comment
4(a)(8)(i)–9 be read to require that the action taken be reported as loan denied whenever a
counteroffer is made and the loan is not ultimately originated. This commenter also stated that
the new language was a major change and that financial institutions would have problems
implementing it before the effective date. Two commenters expressed concern that it might be
difficult for financial institutions to determine and track whether an applicant agrees to proceed
with a counteroffer. Two commenters stated that this difficulty would be greater in the case of
commercial and multifamily transactions because the negotiations are often fluid and several
counteroffers may go back and forth. One commenter suggested that a financial institution
should only have to report something more than loan denied if the loan origination system has
been updated with the applicant’s agreement to proceed. Another commenter suggested specific
guidance for reporting action taken for different scenarios after a counteroffer.
Two commenters suggested that the language added to comment 4(a)(8)(i)–9 conflicts
with the treatment of counteroffers in Regulation B, which one suggested does not treat a
counteroffer as a new application when an applicant agrees to proceed. Two commenters
objected to the idea of a counteroffer being treated as a new application, with one asking how the
original application should then be reported. One commenter who expressed support for the
changes stated that many financial institutions do not use conditional approval letters, and
requested that the example in comment 4(a)(8)(i)–9 be changed to allow other indications of a
conditional approval. Finally, one commenter requested that a deleted sentence stating that a
72
financial institution should report the action taken as loan originated when a loan is originated
after a counteroffer should be put back into the comment.
The Bureau now adopts the amendment to comment 4(a)(8)(i)–9 largely as proposed,
with some modifications to address commenters’ concerns. First, the example in comment
4(a)(8)(i)–9 no longer includes a reference to a conditional approval letter, which the Bureau did
not intend to suggest was required for a conditional approval to exist. The Bureau believes that
removing the reference to a conditional approval letter will broaden the applicability of the
example and facilitate compliance. Second, the comment is revised to clarify that a financial
institution reports the action taken based on the final disposition of the application in response to
the terms of the counteroffer. Information such as the application date and ULI will not change
as a result of the existence of a counteroffer with which the applicant is proceeding. An
additional example is also added to the commentary.
The Bureau continues to believe that it is necessary to provide a full range of options in
reporting the action taken on an application when there is a counteroffer. The Bureau agrees
with the industry commenter who stated that the guidance would ease the difficulties of reporting
by allowing financial institutions’ systems to reflect more accurately the specifics of the loan file
at the time of final action. In addition, the Bureau believes that those institutions and vendors
that were reading comments 4(a)(8)(i)–9 and –13 differently from this clarification will have
adequate time to change their systems. To the extent the clarifications in this rule require
financial institutions to make technical changes, those changes require only minor adjustments,
not significant system updates...

That's it! Thank you hmdagal.

Hey good morning,

So let me see if I'm comprehending all of this. Once we hit 2018 the Reg will then be stating that on a Counteroffered loan that if it does not Originate we no longer have to revert back to the Original terms and issue a Denial and we can either Approve not Accept if the loan has been Conditionally Approved or Withdraw? Geezzamiiighhhty...I might get bonked on the head and go missing from here as long as it's taken me to get most of them here to finally convert their thinking to reverting back to Original Terms and Denying the file.

KT Mite - It won't be the same for every scenario, but, yes there are situations where Withdraw and Approved not Accepted will be valid codes. Denying based on the Original Application is still the way to treat a counteroffer that the borrower does not accept or fails to respond to.

Could someone clear up a little HMDA / Reg B confusion in reference to the above. According to the Technical changes pertaining to the rules now effective for 2018 for HMDA purposes if we have a loan request that is counteroffered and the customer agrees to move forward, then decides not to, if all conditions are met, we would deny the counteroffer terms. (and report the counteroffered loan amount) .

If the loan isn't HMDA reportable, for Reg B purposes, do we follow the same logic, or deny the original loan amount.

Reg B: Although they said they agreed to the counteroffer, if they don't close the loan (decided not to later), you're back to a denial.

Reg C: Same thing. You're back to a denial, so you report the original loan amount requested and report it as a denial.

Thanks Dave. I think I asked my question wrong. Let me try it again.
Loan 1 - Applicant applies for a loan. The loan is HMDA reportable. We counteroffer and the applicant expresses an interest to move forward. The loan never closes. Based on the rules in effect for 2018 we deny the loan and report the counteroffer amount versus the original amount applied for.

Loan 2 - Applicant applies for a loan. The Loan is HMDA reportable. We counteroffer and the applicant immediately rejects. We deny the original amount.

I'm confused by your response because the technical changes say you report the counteroffer amount (if the customer expresses interest to move forward), not the original amount. Are my assumptions above correct? If so, if the loan was not HMDA reportable, would we still report the same way? Reporting the counteroffer amount is part of the HMDA changes. Reg B doesn’t specify what loan amount you are reporting.

If an applicant accepts a counteroffer for an amount different from the amount for which the applicant applied, the financial institution reports the covered loan amount granted. [Commentary to §1003.4(a)(7) #1]

If they didn't close the loan, I don't believe they accepted it. We've discussed this here a few times. Reg B makes it clear that a counteroffer must be closed to be accepted (I don't have the citation at hand to show you). I think HMDA is the same. Just because they "expressed an interest to move forward" doesn't mean they accepted your counteroffer.

You mention the technical changes. If you have something different than the Commentary to §1003.4(a)(7) #1, please let me know. Maybe I missed something.

David, I think jef68 is referencing the preamble to the August 2017 final rule as it goes on an on about this (hmdagal referred to this as "technical changes" in post2156632). Based on the preamble, it appears that the CFPB wants FIs to report the "final disposition of the application in response to the terms of the counteroffer."

Here are a few excerpts from the August 2017 final rule:
"The Bureau recognized that revised comments 4(a)(8)(i)-9 and 4(a)(8)(i)-13 may be read as in tension regarding how to report the action taken on an application for which a counteroffer is made, the applicant expresses interest in the new terms, and the financial institution provides a conditional approval to which the applicant does not respond or which otherwise does not result in an originated loan. Comment 4(a)(8)(i)-9 could be read to require the financial institution to report the action taken as a denial on the original loan terms applied for, while comment 4(a)(8)(i)-13 could be read to require the action taken to be reported as a denial, file closed for incompleteness, approved but not accepted, or application withdrawn, depending on the circumstances.....

In addressing inquiries raising this concern, the Bureau had provided informal guidance that a financial institution should follow comment 4(a)(8)(i)-13 when an application for which a counteroffer is made is followed by a conditional approval that does not result in an originated loan. In accordance with this informal guidance, and to address the need to provide a full range of options in reporting the action taken on an application when there is a counteroffer, the Bureau proposed to amend the language of comment 4(a)(8)(i)-9 to broaden the possible actions taken that could be reported. The Bureau proposed to clarify that, if the applicant agrees to proceed with consideration of the financial institution's counteroffer, the counteroffer takes the place of the prior application, and the financial institution reports the action taken on the application under the terms of the counteroffer. In addition, the Bureau proposed to illustrate this interpretation by providing an example in comment 4(a)(8)(i)-9. The example would clarify that, if a financial institution makes a counteroffer, the applicant agrees to proceed with consideration of the counteroffer, and the financial institution sends a conditional approval letter stating the terms of the counteroffer, the financial institution reports the action taken on the application in accordance with comment 4(a)(8)(i)-13 regarding conditional approvals."

Continuing on...
"One commenter who expressed opposition to the changes preferred that comment 4(a)(8)(i)-9 be read to require that the action taken be reported as loan denied whenever a counteroffer is made and the loan is not ultimately originated. This commenter also stated that the new language was a major change and that financial institutions would have problems implementing it before the effective date."

"The Bureau now adopts the amendment to comment 4(a)(8)(i)-9 largely as proposed, with some modifications to address commenters' concerns. First..... Second, the comment is revised to clarify that a financial institution reports the action taken based on the final disposition of the application in response to the terms of the counteroffer. Information such as the application date and ULI will not change as a result of the existence of a counteroffer with which the applicant is proceeding. An additional example is also added to the commentary.

"The Bureau agrees with the industry commenter who stated that the guidance would ease the difficulties of reporting by allowing financial institutions' systems to reflect more accurately the specifics of the loan file at the time of final action."

"Furthermore, the Bureau has replaced the language in the proposed comment stating that the counteroffer takes the place of the prior application. This change is meant to make clear that the revisions to comment 4(a)(8)(i)-9 do not treat a counteroffer as a new covered loan that must be reported as a separate entry in the loan/application register, but rather provide that for purposes of reporting action taken, where the applicant agrees to proceed with consideration of the financial institution's counteroffer, the financial institution reports the action taken field as the disposition of the application based on the terms of counteroffer.

Thank you Adam. That is what I was referring to. So if the loan was HMDA reportable we would follow that guidance. If the loan was not HMDA reportable, I would think we would continue to report based on the Reg B guidance as Dave noted? Its inconsistent however. A commenter noted that in the HMDA technical changes but their response was that they didn't think it was inconsistent. It seems like it is.

The bottom line is that Reg C and Reg B are two different rules, so doing things slightly different for each may be a bit challenging from a logistical perspective, but doesn't provide conflict for the rules as they are completely separate requirements.

So, to clarify, there are no changes for Reg B from what we have always done (for both HMDA reportable loans and loans not subject to HMDA). The adverse action requirements did not change, so this rule does not affect that. The logistical challenge you will have is that, when reporting for HMDA, you may have some inconsistencies from Reg B. This is really no different than the inconsistencies with TRID, such as loan purpose.


In reading this pre-able, it appears to me that the response to the commenter about the discrepancy in Reg B has to do with whether there would be a new application when a counter offer occurs. It seems the commenters were thinking that the proposed comment (that was ultimately revised for clarification) said that a counteroffer under HMDA would be treated as a new application, where it was not treated that way under Reg B.

Two commenters suggested that the language added to comment 4(a)(8)(i)–9 conflicts with the treatment of counteroffers in Regulation B, which one suggested does not treat a counteroffer as a new application when an applicant agrees to proceed. Two commenters objected to the idea of a counteroffer being treated as a new application, with one asking how the original application should then be reported.

...and the CFPB response:
"In addition, the Bureau does not believe that the new language in comment 4(a)(8)(i)-9 conflicts with the requirements of Regulation B.[111] Regulation B and Regulation C address different requirements: The revisions to comment 4(a)(8)(i)-9 clarify reporting of the action taken field while Regulation B, 12 CFR 1002.9(a), sets forth when an adverse action notice is required. Thus, comment 4(a)(8)(i)-9 does not affect a financial institution's obligation to comply with Regulation B.

Furthermore, the Bureau has replaced the language in the proposed comment stating that the counteroffer takes the place of the prior application. This change is meant to make clear that the revisions to comment 4(a)(8)(i)-9 do not treat a counteroffer as a new covered loan that must be reported as a separate entry in the loan/application register, but rather provide that for purposes of reporting action taken, where the applicant agrees to proceed with consideration of the financial institution's counteroffer, the financial institution reports the action taken field as the disposition of the application based on the terms of counteroffer."

Like many regulations, how you report for one does not necessarily match how you will report for another.

Ok, so to make sure I am understanding this correctly (sorry for some reason I am having a block) if we have a counteroffer (non HMDA reportable) that the applicant does not accept (whether rejected immediately or after an initial acceptance) for Reg B purposes we would deny the original transaction.

If it was HMDA reportable we would deny the original transaction if it was an immediate rejection and deny the counteroffer if it was initially accepted, then rejected.

I'm not sure I'm following your last paragraph, but this is how I handle these [particularly for 2018 forward with the new clarifications, which make sense, btw].

Just suppose to begin with, the value doesn't work out.

I will send a Denial with Counteroffer to lower the requested amount.

1) Borrower accepts and we move on. This will be Originated for HMDA
2) Borrower says never mind. This will remain a denial for Reg B and HMDA
3) Borrower accepts, then later on some issue comes up and they change their mind, an we'll say after final approval. This will no longer be a B issue, and will be an ANA for HMDA.
4) Borrower accepts, then later changes mind because title can't be cleared. This will be another denial for B and ANA for HMDA.

First, I'm reminded that the more I know, the more I realize I don't know. smile
Second, thank you for pointing out the details Adam. I had missed this and relied upon the Reg B logic to drive my understanding of Reg C. I haven't studied this in depth yet, but your quotes from the Aug 2017 certainly point out how I was incorrectly understanding this. My apologies to jef68 for misguiding you and to hmdagal for missing your earlier clarification.

Third, what Joker wrote is exactly how I'm understanding this now.

Thanks again to Adam & hmdagal for the clarification and to Joker for the illustrations.

Thanks everyone for your help!