....still trying to get this straight in my noggin.

If the applicant does not respond to the lender's calls with respect to an application, is it reported as "closed for incompleteness" ONLY IF the lender has mailed a Reg B "Notice of Incompleteness?" Or is that the action even if the loan officer did NOT send a Reg B "Notice of Incompleteness?"

I know that for Reg B, failure of an applicant to respond can be considered "withdrawn" but not for HMDA.

e. Use Code 5 if you sent a written notice of incompleteness under §1002.9(c)(2) of Regulation B (Equal Credit Opportunity) and the applicant did not respond to your request for additional information within the period of time specified in your notice. Do not use this Code for requests for preapproval that are incomplete; these preapproval requests are not reported under HMDA.


If no notice was sent then you have a denial for an incomplete application.

I agree. You must spend a NOI to use the "Closed for Incompleteness" code. If you don't send a NOI and the customer has expressly withdrawn, you must send a denial. The abases of info from the applicant is neither a withdrawal or incomplete.

See if I have this straight.

If the bank sends a Notice of Incompleteness....which tells the customer what the bank needs and the deadline for providing it, and the customer doesn't respond, the application is "closed for incompleteness."
For HMDA, this is reported as "closed for incompleteness."

If the bank chooses NOT to utilize a Notice of Incompleteness, the bank must send a denial with a reason of "application incomplete."
For HMDA, this is reported as "denied.".

If the customer calls or writes and says "I withdraw."
For HMDA, this is reported as "withdrawn."

Assuming the NOI was done in compliance with Regulation B and there was not a conditional approval (see below), I agree.


Yes.


As I'm sure you know, the answer depends on the specific situation. For example: Was there a counter offer? Was there a conditional approval and did they satisfy all underwriting/credit worthy conditions? Had you sent a notice of incompleteness? The answer is just a bit more complex pending the situation, so I don't think there is a clear answer to this question. I'm sure you have already seen this, but take a look at the following sections of the commentary:

From comment 6 to 1003.4(a)(8)(i):
6. Action taken—file closed for incompleteness. A financial institution reports that the file was closed for incompleteness if the financial institution sent a written notice of incompleteness under Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not respond to the request for additional information within the period of time specified in the notice before the applicant satisfies all underwriting or creditworthiness conditions. See comment 4(a)(8)(i)-13.

From comment 9 to 1003.4(a)(8)(i) which covers counteroffers:
"For example, assume a financial institution makes a counteroffer, the applicant agrees to proceed with the terms of the counteroffer, and the financial institution then makes a credit decision approving the application conditional on satisfying underwriting or creditworthiness conditions, and the applicant expressly withdraws before satisfying all underwriting or creditworthiness conditions and before the institution denies the application or closes the file for incompleteness. The financial institution reports that the action taken as application withdrawn in accordance with comment 4(a)(8)(i)-13.i. Similarly, assume a financial institution makes a counteroffer, the applicant agrees to proceed with consideration of the counteroffer, and the financial institution provides a conditional approval stating the conditions to be met to originate the counteroffer. The financial institution reports the action taken on the application in accordance with comment 4(a)(8)(i)-13 regarding conditional approvals."

Also from comment 13 to 1003.4(a)(8)(i) which covers conditional approvals:
"13. Action taken—conditional approvals. If an institution issues an approval other than a commitment pursuant to a preapproval program as defined under § 1003.2(b)(2), and that approval is subject to the applicant meeting certain conditions, the institution reports the action taken as provided below dependent on whether the conditions are solely customary commitment or closing conditions or if the conditions include any underwriting or creditworthiness conditions.

i. Action taken examples. If the approval is conditioned on satisfying underwriting or creditworthiness conditions and they are not met, the institution reports the action taken as a denial. If, however, the conditions involve submitting additional information about underwriting or creditworthiness that the institution needs to make the credit decision, and the institution has sent a written notice of incompleteness under Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not respond within the period of time specified in the notice, the institution reports the action taken as file closed for incompleteness. See comment 4(a)(8)(i)-6. If the conditions are solely customary commitment or closing conditions and the conditions are not met, the institution reports the action taken as approved but not accepted. If all the conditions (underwriting, creditworthiness, or customary commitment or closing conditions) are satisfied and the institution agrees to extend credit but the covered loan is not originated, the institution reports the action taken as application approved but not accepted. If the applicant expressly withdraws before satisfying all underwriting or creditworthiness conditions and before the institution denies the application or closes the file for incompleteness, the institution reports the action taken as application withdrawn. If all underwriting and creditworthiness conditions have been met, and the outstanding conditions are solely customary commitment or closing conditions and the applicant expressly withdraws before the covered loan is originated, the institution reports the action taken as application approved but not accepted."

We do not issue written counteroffers nor, at least presently, send notices of incompleteness. Therefore, If the bank receives an application, pulls credit, and everything looks like a go, we either need a response from the applicant to expressly withdraw it, or deny for incompleteness?

What mortgage lenders tend to do (at all three banks for which I have worked) is to hold applications for which no information exists for a denial, indefinitely, leaving the ball in the applicant's court. Then at some point, the lenders decide to "clean out the pipeline".....they try to make contact with the applicant and more than likely, the applicant has already moved on. So the lender turns the application file in as "withdrawn" with a reason of "customer wouldn't respond."

So for these, we should send a denial for the file being incomplete. But since the file was in an "approved state," does the notice have to go out within 30 days?

What mortgage lenders tend to do (at all three banks for which I have worked) is to hold applications for which no information exists for a denial, indefinitely, leaving the ball in the applicant's court.

I hate to think of the number of Reg. B violations that are waiting to be found and the potential penalties for a pattern and practice of regulatory violations.

But since the file was in an "approved state,

If you have incomplete information and you did not issue a conditional approval how were the applications in an "approved state"?

So the lender turns the application file in as "withdrawn" with a reason of "customer would respond."

The loan officer can't withdraw the application without express consent from the applicant.


It appears a lot of Reg. B training needs to be done. Especially for the notification requirements in 1002.9.

If it truly is in an "approved state," it could be considered withdrawn under Regulation B:

"(e) Withdrawal of approved application. When an applicant submits an application and the parties contemplate that the applicant will inquire about its status, 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 paragraph (a)(1) of this section."

In simple terms, Reg B does not require an adverse action notice [i.e. paragraph (a)(1)] when you have approved an application and not heard back from the applicant, as it considers the application withdrawn.

That said, all of this gets a bit tricky based on the "approved state" you mentioned as some bank approval processes aren't as clear cut as others... as Dan pointed out.

Reg B requires the bank to communicate a decision within 30 days. The decision was "approved" (albeit just based upon information in the application and the credit report). In other words, no information existed to point to a denial. I can see issuing a denial "application incomplete" later, after the customer doesn't come back and refuses acknowledge communication attempts by the bank. But I don't see having to send it within 30 days.

I find it baffling that at a 2 billion dollar bank for which I previously worked in compliance for 20 years....that had a large mortgage operation, and handled applications exactly as I have described above...that no examiner ever cited the bank for this practice...for 20 years. Were we just lucky?

In our last exam, this was a hot topic. In previous exams, withdrawn loans were barely looked at, because denials are where all the easy findings are, but they seem to be catching on to this all too common practice. Lenders want to hold on to a file forever, and they never want to send out a denial notice.

Literally every training I've done in the past two years with our mortgage department has covered this topic, and I still have a ton of findings.

Maybe I'm missing something here but this is the HMDA forum so I'm assuming swiggles is asking how to mark these applications on her LAR.
If that's the case, you cannot withdraw a loan after it has been approved. Withdrawn is only reported when an application is expressly WITHDRAWN BY THE APPLICANT BEFORE A CREDIT DECISION IS MADE.
Withdrawn cannot be used when an applicant withdraws the application AFTER the credit decision is made. Those are approved but not accepted.

As for 20 years with no findings on this, I'm baffled too. The only way I might rationalize it would be if you didn't communicate the approval to the borrower before they withdrew. But that's splitting hairs.
As for holding files and cleaning out the pipeline, you were very very lucky. That's been mentioned as a finding a number of times on this site and other bank compliance sites too. I can personally attest to being asked that question in an exam.

Thanks everyone!

I guess this modulated into a discussion that should be elsewhere.....BUT.....NOW.....see if I have this right!!

Within 30 days of receipt of an application, the bank must:

• Completely underwrite and approve the application (verfications, financials, etc) and communicate an approval (can be verbal) to the applicant; OR
• Deny the application and send an adverse action notice; OR
• If there is nothing in the initial application file to cause a denial, and the applicant has not expressly withdrawn, either:
  *send a denial with a reason of "application incomplete" OR
  *send a "Notice of Incompleteness" with a list of what is needed and a deadline for providing the information.

The "Notice of Incompleteness," can include a statement that if the applicant doesn't respond, no further consideration will be given to the application....which would satisfy providing a denial.

I think you've got it. I would recommend going with the "*send a "Notice of Incompleteness" with a list of what is needed and a deadline for providing the information." approach. It's kinder and loan officers will adopt this easier as they don't feel like they are denying the applicants.

Thanks, David.

.....got a bunch of work to do......