If my FI receives a credit request for a prequal (we do not have a formal pre-approval program), and the consumer never responds to the LO's attempt to communicate, would the prequal fall under the Notification requirements of ECOA since 1) the LO wasn't able to proceed with the file, 2) We also do not issue an NOI;long story as to why my FI does not issue an NOI- We currently issue a Denial for an Incomplete App.
All of a sudden, an LO is not happy with that- We consider a 'completed' when the FI receives all 6 pieces. Thoughts?

First thoughts are that for a "prequal" the LO should not collect all 6 pieces....at my FI our LOs don't include the property address, they use 'TBD' instead. If the LO insists on collecting all 6 elements of an application, then they (or their processor) should send an NOI that contains the required verbiage under Reg. B....I'm assuming their emails or phone calls wouldn't satisfy that aspect of the reg. Your last option would be what you mentioned - denying it outright for an '7 - incomplete credit application'.

I'd like to hear anyone else's thoughts.....

My only thought is....and has nothing to do with the Notice of Incompleteness issue....that a lender cannot just choose to indicate "to be determined"....if there is a subject address, the address must be included and therefore the application cannot be a prequalification or preapproval request. Or perhaps I am misinterpreting what you meant.

In our eyes that's the difference between a 'prequal' and a typical application. For a prequal, you just want to know how much you qualify for...what kind of rate you'd get...etc....for that, there is no need for a subject property. However, if the borrower has a contract or if it is a refinance then of course this would not work.

If you get a request for a Prequal and deliver it but then don't hear back from the borrower on an actual property, do you owe them a NOI after 30 days?

1) Did the "prequal" contain all elements of an application (ALIENS)? If so and communication with the borrower has ceased, someone should send out an NOI within the first 30 days the application/prequal was taken.

2) An NOI is to be sent within the first 30 days, not after. However, if you are going to deny the file for an incomplete credit application, this should be done by the 30th day.


IMHO sending an NOI within 30 days is the easiest way to deal with a borrower that falls off the face of the Earth. As long as the reg. b verbiage is included, once the NOI is sent there is nothing more you are required to do.

1) It did not have a property address or loan amount, just the other four pieces.

We're very far past the 30 days - it was being kept in a file "just in case" they came back... do we owe them one, or do we train, document, and move on?

You don't owe them anything unless the app stopped because adverse info was discovered. If that's not the case and it's missing 2/6 fields, you're fine....nothing else is needed.

Comply, could you be more specific on what Reg. B verbiage needs to be included so that the only notification you need to send is an Notice of Incomplete Application (NOI).

If there is anyone who disagrees with this please let me know as I am somewhat confused. I was under the impression that if you have an incomplete you can 1). Send out an adverse action notice and deny the loan within 30 days or 2). Send out an NOI and if you don't hear back from the applicant you then send out the adverse action notice within 30 days of the NOI.

Any insight is appreciated.

1002.9(c)
(2) Notice of incompleteness. If additional information is needed from an applicant, the creditor shall send a written notice to the applicant specifying the information needed, designating a reasonable period of time for the applicant to provide the information, and informing the applicant that failure to provide the information requested will result in no further consideration being given to the application. The creditor shall have no further obligation under this section if the applicant fails to respond within the designated time period. If the applicant supplies the requested information within the designated time period, the creditor shall take action on the application and notify the applicant in accordance with paragraph (a) of this section.

No further action under this section refers to 1002.9 - notifications. You need not notify them anymore.

Wording - see appendix C-6 https://www.bankersonline.com/regulations/12-1002-appc

So no need to send an adverse action notice denying the loan for incompleteness?

Not if you sent the NOI.

As RJ indicated, you did notify them! If the wording meets the requirements of Appendix C-6 (what's missing, reasonable timeframe to complete, and wording ". . . no further consideration . . . ",) that is the required wording. :-)

Sweet! Thanks for confirming.

One of those cases where you almost can't believe the government isn't making you duplicate your efforts or do something completely worthless.

I'm having some discussions about a file that is for a Refinance and has a Property address listed is being considered "prequal" because we didn't key in the Income. We are going to "exclude" this from the HMDA LAR because it was never "technically" a "complete" Application because we don't have all 6 pieces of information.

I thought HMDA was Property address driven but then I read this and thought maybe I've missed a link in my comprehension during the time I've been out of that particular dept dealing directly with HMDA: Regulation C definition of application depends on a creditor’s particular policy and procedures, which may or not mirror receipt of the six pieces of application under the TRID rule.

Thanks for the help!

First, a refinance can never be a prequal. You can only have a prequal when a property is not identified. You have an incomplete application, so you either sent a notice of incompleteness or denied the application for incomplete information and would report accordingly.

First, I don't believe you can't have a refinance (property identified) and call it a "prequal". Below are the definitions of a prequal and preapproval. The definition of preapproval specifically mentions "home purchase". Although that wording is not in the definition of prequal, I have always understood that a prequal is the same thing except it doesn't meet all of the conditions of a preapproval (full underwriting, administration (issue a written commitment, etc.).

A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective loan applicant would likely qualify for credit under an institution’s standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution’s normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the loan/ application register, even though these requests may constitute applications under Regulation B for purposes of adverse action notices. [Commentary to §1003.2(b) #2]

A request for preapproval… is an application under this section if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. [§1003.2(b)(2)] To be a preapproval program… the written commitment… must result from a comprehensive review of the creditworthiness of the applicant, including such verification of income, resources, and other matters as is typically done by the institution as part of its normal credit evaluation program. [Commentary to §1003.2(b) #3] The written commitment may not be subject to conditions other than: [§1003.2(b)(2)]

Second, I do believe HMDA is property driven. Can you tell me where you read the quote you made about TRID's 6 pieces in Reg C? I do a word search of the Oct 2015 and Sept 2017 final rules and do not see this. §1003.2(b)(1) states an application is "an oral or written request for a covered loan that is made in accordance with procedures used by a financial institution for the type of credit requested." Notice is doesn't say "policy" and doesn't mention 6 pieces of information (like TRID).

Thank you Randy and David...I am in complete agreement with both of you and feel that this is a HMDA Applicable loan, which is my argument to them because there is a property address involved already. For whatever reason that I am not privy to, it has been decided that if we don't have these "6 pieces" of information (in this case "income") it is considered a "prequal" and therefore not HMDA applicable. I have strongly advised them that we have multiple compliance issues going on here and all I see is a sea of red flags. But again, sometimes when you are no longer dealing with certain Regulations on a continuous basis, I always get concerned that something has changed that I have missed and wanted to just be sure before I continue my stance that I am correct in my assessment. That article I read yesterday gave me concerns that something had changed and I had missed it!

Thank you guys so much for your help,
Karen

David...also this is the article I was reading that confused me in particular this paragraph right here.

Mortgage Compliance FAQ article http://mortgage-faqs.blogspot.com/2016/08/hmda-and-trid_11.html

An application under TRID is defined as the submission of the six pieces of information with which we are now so familiar: (1) the consumer’s name, (2) the consumer’s income, (3) the consumer’s Social Security number to obtain a credit report (4) the property address, (5) an estimate of the value of the property, and (6) the mortgage loan amount sought. Unlike the TRID rule, Regulation C does not contain a clear, succinct definition of the term application. Rather, the Regulation C definition of application depends on a creditor’s particular policy and procedures, which may or not mirror receipt of the six pieces of application under the TRID rule.

Thanks KTMite. I agree with you on the prequal issue - you have a lot of issues & red flags tied around this misunderstanding. You can only advise. If they won't listen, then you've done what you can.

Concerning the HMDA definition of an application: All I can say is TRID and HMDA (and even Reg B) don't line up exactly. You can't take a definition from one regulation and apply it to another. I read the article you referenced from Michael Goldhirsh but don't agree that it states you can say you don't have a HMDA application until you have the 6 pieces of info for TRID. In fact, Mr. Goldhirsh is warning people not to do this as these regulations don't line up.

In his article, Mr. Goldhirsh states:
Unlike the TRID rule, Regulation C does not contain a clear, succinct definition of the term application. Rather, the Regulation C definition of application depends on a creditor’s particular policy and procedures, which may or not mirror receipt of the six pieces of application under the TRID rule.

The term “application” is defined differently across most regulations. One should always be mindful to consider the purpose of any regulation, and particularly the various regulations that define what a mortgage application is and what it triggers. Under the TRID rule, the goal is to provide consumers disclosures that enable them to shop for and compare different loan and settlement cost options in a timely manner. Hence receipt of an application triggers the loan estimate. The purpose of HMDA is to prevent discrimination and insure that the housing needs of communities are being met. Thus, receipt of an application under HMDA triggers reporting about the disposition of that application, demographics, the applicant’s characteristics, and so forth.

The following is from the 10/28/15 Federal Register (the HMDA Final Rule). You can find it on page 66138:
The Bureau received several comments urging that the Regulation C definition of application should be aligned with the definition used in Regulation Z §1026.2(a)(3)(ii) to simplify compliance across regulations. As the Bureau noted in the proposed rule, the Bureau did not propose to align the definitions because they serve different purposes. The definition of application in Regulation Z § 1026.2(a)(3)(ii) establishes a clear rule for triggering when disclosures must be provided. In contrast, the definition for Regulation C is closely related to Regulation B and serves HMDA’s fair lending purposes by requiring information about the disposition of credit requests received by financial institutions that do not lead to originations. Therefore it is important for the Regulation C definition of application to be based on the procedures used by the financial institution for the type of credit requested rather than the defined elements of the definition in Regulation Z §1026.2(a)(3)(ii) under which creditors may be sequencing and structuring their information collection processes in various different ways.

Reg B defines both an "application" and a "completed application". HMDA only addresses an "application". The preamble makes it clear that HMDA is closely related to Reg B and not Reg Z.

Mr. Goldhirsh is emphasizing the same point. He says "The short answer is that receipt of some or all of the six pieces of TRID application information does not necessarily trigger an “application” for purposes of HMDA reporting.

I agree with the article you reference, but don't agree you can say you don't have a HMDA application until you have the 6 items for TRID or that you do have a HMDA application just because you have the 6 items for TRID (although you probably would). They are two different things.

David...as always thank you so much for your indepth discussion. Helps me so much. :-)

Found this thread as I was looking into something for our Bank. We do not have a preapproval program but instead have a prequalification program. We have everything but an address, pull credit and run underwriting based on the numbers they have provided, we have not verified income and inform them they are prequalified for this much. We do not send a NOI or any follow up and just consider it inactive. Is this practice fine? I feel we should be send some follow up and then if they do not respond consider it closed for incompleteness.

You say "We consider this approved, not accepted". That's Reg C terminology. Reg B doesn't have "approved, not accepted". You have a Reg B application that you have given a preliminary approval. LO's are in the business of making loans (sales), so I would think you'd want to follow up with the applicants to see if they ever found a house or decided not to move forward. If you talk to them and they say "never mind", call it withdrawn.

When an applicant expressly withdraws a credit application, the creditor is not required to comply with the notification requirements under §1002.9. [Commentary to §1002.9 #2]

Are you trying to rely on this section of Reg B?
If the creditor approves the application and the applicant has not inquired within 30 days after applying, the creditor may treat the application as withdrawn and need not comply with the notification requirements of Regulation B. [§1002.9(e)]

If so, I'm not sure you can say you have "approved" them. You don't have a house and haven't done verifications. If you say they are approved, that can be a two edged sword.

If you never hear from them, it would best to send a NOI. This would be the cleanest approach and provide clear closure.

While researching my answer, I came across the Commentary to §1002.9(c)(1)#1:
Exception for preapprovals. The requirement to provide a notice of incompleteness does not apply to preapprovals that constitute applications under §1002.2(f).

This specifically mentions preapparovals, but it would seem to fit prequalifications as well. Admittedly, I haven't studied this so maybe others can chime in and give their opinion or what they do when someone is prequalified and they never hear back from them.

Disregard the approved, not accepted as I understand that is Reg C and that is getting mixed in. I think the question is since the bank does not send a notice of incompleteness and if this is a prequalification with no address, are we required to send anything to the customer? Otherwise, after so many days we just consider it inactive and move on.

I don't think there's a time line that you must obey. You've told them they are "green lighted" and you're waiting on them. I think it's cleaner/nice to send a "hey, did you ever find a place?" letter or phone call, but you're not taking adverse action against them. Again, the Commentary to .9(c)(1)#1 seems to fit nicely here.