I am having a disagreement with my manager regarding a husband and wife application. Let's say we can't qualify the application with both borrowers, but we can qualify with one. Are we able to just delete one borrower off and proceed with the loan without issuing any kind of Adverse Action Notice? Wouldn't this be considered a counteroffer? If the reason for the one borrower not qualifying is credit score based, then wouldn't a separate notice based on FCRA be necessary regardless?

What are others doing in these situations?

Yes - you owe the denied credit applicant a AAN. You are only counter-offering to one of them.

Do you have any supporting evidence you can point me to for that conclusion?

Look to the definition of adverse action in 1002.2(c), the definition of an applicant in 1002.2(e) and the notification requirements in 1002.9.

Agree with the gurus. Jack and Jill applied for credit. You told one of them they dont qualify and you cant approve the loan as requested. You owe the person you are denying an AAN, even if the application continues and the loan is originated under a sole borrower.

I agree as well. I need evidence for my boss though. I have read the regulations, they don't provide clear guidance for such a situation. My boss will want it spelled out.

You: Did you deny credit to one of the applicants?

Boss: Yes.

Just stand there and look at them until the lightbulb goes on.

Lol. It would be nice if it was that easy. Her belief is as long as we continue with the file, then no AAN is necessary. We denied one, but we are still providing credit to the other. Because we are not really "denying" the one borrower, we are just removing them from the loan in order for the file to proceed. A lot of the mortgage banks don't have a good understanding of what constitutes a counteroffer. It's different from a community bank. It's more fast paced because it is a high volume business. The LOs basically routinely do denials and counteroffers, but they don't know that is what is actually going on. They just consider "what do we need to do to move the file along and close?"

Click on the "E-mail" Post button in the lower right corner and send her this thread. Between Dan and I, we combined probably have been in compliance longer than your boss has been alive. If that is not good enough, I guess you will just have to wait for a regulatory body to tell her and then suffer through the order of a 25 month look back for every loan transaction that you have touched to identify such occurrences to send out adverse action notices.

Between Dan and I, we combined probably have been in compliance longer than your boss has been alive.

I have been in lending in one facet or another since 1974. I've been in compliance, full time, since 1990.

I believe, I believe. LOL.

Dan has me by a year or two on total longevity, but I started in compliance in 1988.

... at the age of 12? = ^ ]

HAHAHA!

Good luck Justin. Hope it goes well!

Justin: If it helps, I agree with Dan & Randy. That will add to your "expertise": another BOL Guru, an previous FDIC Examiner, a compliance consultant for 25 years. I also teach AANs at the ABA's In-Bank Compliance School.

On the other hand, it sounds like your boss doesn't want to listen to anyone else. Good luck.

So from Justin's side - let's say his boss flat out disagrees and refuses to send the AAN. What should Justin do, knowing that his boss is wrong but won't let him do what's right? Should he just keep a record of what happened to show when he's questioned?

I don't know Justin's chain of command or what Justin's responsibilities are for that matter. But he should present his argument in writing with the supporting regulatory cites and potential repercussions and then leave the management decision to them. He by all means should keep a copy of the presentation as a CYA.

I can tell you from experience that if 1002.9 violations are found you will get to go back to the date of your last exam and review every single denial for accuracy and the ones that are noted inaccurate you will get to send a corrected one to the applicant even if the denial occurred 2 years ago. You will even get to review withdrawals etc. to make sure they weren't actually denials.

In Justin's situation one applicant was counter offered - the other applicant was denied. It's that plain and simple.

@Dan - We've had no "last exam." lol. We're a mortgage bank. All we get is sucky state licensing exams. We have a risk that the CFPB will come in, but that would be a statistical rarity. However, we did actually get pulled and the CFPB is supposed to come in this year, but they will only be looking at Fair Lending.

*{But he should present his argument in writing with the supporting regulatory cites and potential repercussions and then leave the management decision to them.}*

If anybody has any specific regulatory cites regarding what to do when one borrower is deleted from a loan and the other borrower continues with an approval, then please provide. I do believe my boss would willingly listen to clear and specific regulatory guidance on this topic. The issue is that if it is an "interpretive" understanding that we are all presenting here, then she has already developed her own interpretation/understanding.

@David - As a former OCC examiner, I will have to watch my cutting comments about the FDIC out of respect for you going forward .

Again, as I stated previously, I agree with all of you. I just don't really have anything to come at my boss with other than "common sense" as RL noted.

"Did you deny credit to one of the applicants?" {Yes} "On what basis did you proceed with the borrower that remains approved?" {We told them they could continue on without the other applicant} "Isn't this basically a counteroffer?" {Well, Yes, I guess}.

"Isn't this basically a counteroffer?" Yes, but only to one of them!

Justin - when an applicant is deleted (to use your phrase) you have to determine why the applicant was deleted. 99.9% of the time it will be because that applicant causes the loan not to qualify for what is being applied for. The other .1% is generally applicant requested.

I gave you the regulatory cites for the definition of adverse action, an applicant and notification requirements. I'm not sure what other citations you need.

The deleted applicant applied for credit, they met the definition of an applicant, they were denied therefore they get an explanation of why they were denied.

The remaining applicant was counter offered. They accepted therefore no adverse action was taken against them. However if they do not accept the counteroffer they get an AAN of why they were not approved for the terms originally applied for.

I am looking for a citation or commentary that specifically spells out: "When you have multiple borrowers and some borrowers are taken off the loan and the loan proceeds with the remaining borrowers, then you are required to issue an AAN to the borrowers that are taken off the loan." Something to that effect. Otherwise 12 CFR 1002.2(c) states that adverse action means: "A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered." My boss' take (and many others in the mtg. banking industry) seems to be that this doesn't apply to the situation we have described. Credit is still being granted on substantially the same terms requested in the application. The creditor is not really making a counteroffer, i.e. no new terms are being offered, no different program, no different amount, etc. The argument is that credit is still being granted on the same terms, albeit with one less borrower. So, for this particular application, there is no Adverse Action taking place. They don't look at the borrowers as essentially submitting two (or more) applications, which represents each individual's stake in the credit. They are just looking at the application in a silo, and the application itself is still proceeding towards approval.

While Reg. B only requires an AAN to one of the applicants for adverse action as defined, you might look to the definition of adverse action in the FCRA. For example (my emphasis added):

(iv) an action taken or determination that is

(I) made in connection with an application that was made by, or a transaction that was initiated by, any consumer, or in connection with a review of an account under section 604(a)(3)(F)(ii)[§ 1681b];

So the "deleted" applicant made an application, is "any consumer" and did not obtain credit.

I think the only citation you need is what Dan said "the definition of adverse action in 1002.2(c), the definition of an applicant in 1002.2(e) and the notification requirements in 1002.9." It might be substantially the same terms for the bank, but not for the applicants. One has no loan, the other is now solely liable for the loan.

It seems pretty clear to me, but if you need more convincing for your boss, just change the facts so that one of the borrowers is a member of a protected class and the other is not and/or change it so that instead of being married, they are just two people buying an investment property.