If a counteroffer is made, the applicant agrees to proceed, the loan is approved and then the applicants decide not to go through with the loan under the counter-offered terms; is this reported as a denial because ultimately the counteroffer was not accepted because the loan didn't originate, or an approved but not accepted because the counteroffer was accepted, the loan was approved on the new terms but ultimately didn't originate?

9. Action taken—counteroffers. If a financial institution makes a counteroffer to lend on terms different from the applicant's initial request (for example, for a shorter loan maturity, with a different interest rate, or in a different amount) and the applicant declines to proceed with the counteroffer or fails to respond, the institution reports the action taken as a denial on the original terms requested by the applicant. If the applicant agrees to proceed with consideration of the financial institution's counteroffer, the financial institution reports the action taken as the disposition of the application based on the terms of the counteroffer. 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 The financial institution reports that the action taken as application withdrawn in accordance with comment 4(a)(8)(i)-13.i. Similarly, assume a financial institution makes a counteroffer, the applicant agrees to proceed with consideration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.

Think of an accepted counter-offer as a "reset". All possible Action Taken codes are back on the table.

If they reject your counter-offer, then you have a denial.

I've asked the LO a few more questions about how things went down...

The applicant accepted the counter offer (combined denial/counteroffer on a Notice of Action Taken) and the LO obtained approval and expressed that approval to the applicant. The next day the applicants' asked for a lower rate and longer term. The LO went back to committee to ask for these terms. The request was denied but was countered with different terms. The LO then verbally expressed this to the applicant (which is outside of our internal policy, which requires a combined denial/counteroffer). About five days later the customer "withdrew" the loan.

So I am thinking that we must report as a denial because the final verbal counteroffer was not accepted and the terms such as loan amount and rate, etc. will be reported based on the last request of the applicant, and that we have an ECOA violation because the LO never sent out the an adverse action notice after the verbal counteroffer was not accepted.

If I understand correctly, the applicant countered your counter-offer and you denied their request. I would call that a denial as well. You're denying their request for a lower rate & longer term.

You could say that you had an acceptance of the counter-offer and then show that as withdrawn BUT you would then have a new application that was denied. I would consider this one application and just call it denied.

Thank you very much for the guidance.

if a counter offer is accepted, what date do I use for the application date? the original application date or the date the counter offer is accepted?

Good question. I don't know that there's any guidance on this. I would go with the original application date. However, when you have an accepted counter-offer, there's basically a "reset" on the action taken:

If the applicant agrees to proceed with consideration of the financial institution’s counteroffer, the financial institution reports the action taken… based on the terms of the counteroffer. [Commentary to §1003.4(a)(8)(i) #9]

If the action taken is "reset" that makes me think you should go with the date the counter-offer is accepted. My choice would be to go with the original application date and again, I'm not aware of any guidance on this.

I'm curious how others are reporting it.

I would go with the original application date.

I agree. The counteroffer is not the result of a new application. It is the result of the information provided on the original application.

If a counteroffer is made, the applicant agrees to proceed, the loan is approved and then the applicants decide not to go through with the loan under the counter-offered terms

Given the above situation, this would be reported as approved but not accepted, for the purpose of HMDA.


Now for Reg B, previous threads have stated that, given the above example, that at the point of withdrawal, that is the applicant refusing the counteroffer terms based on the fact that the loan never originated. Because of this, we should issue a denial to the applicant based on the original loan request being denied. In this case Reg B would treat this as a denial, and not approved but not accepted. Is this still the case?

I used to be in that camp, but after studying this, I don't think Reg B is any different.
[I]A creditor must notify an applicant of action taken within 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered. [§1002.9(a)(1)(iv)]

The word "accept" does not mean the loan will be closed. In fact, the regulation even says "or use". That tells me if the applicant says "okay" to the counter-offer, then I don't have to send a denial notice. You could later have a withdrawal or close the file for incompleteness and not have to send an Adverse Action Notice.

You lost me, David. The applicant may have accepted the offer but they are not using it. Seems to me like you still need a denial notice.

I have been treating these as denials, for Reg B, for a while now. We have stressed with lenders that if the initial loan request is denied, and the loan does not originate under any counteroffer terms, that a denial notice must be mailed to the customer.

If for the purpose of Reg B, we could treat the above example as a withdrawal, this would help us out with some issues we are having AND let Reg B match HMDA.

I would love to hear from others and how they are currently treating this situation for Reg B.

"if the applicant does not expressly accept or use the credit offered."

I think David's read is correct, but I'm not that confident that an examiner would agree. I would not want to be explaining a bunch of withdrawn files with counter offers and no adverse action notices. I would think you'd need a good way to document both the "express approval" and the withdrawal.

Inherent Risk is correct. The wording in Reg B says "OR". Thus, it says "accept or use". Use means the loan is closed, obviously. So what does "accept" mean? In my opinion, "accept" means they said "yes", but it doesn't mean they have to close the loan.

Conservatively, send a denial, but I don't think it's required.

Here is my 2 cents on this:
-If an examiner was trying to cite a bank for not sending a denial notice, I would be in David's camp.
-If I were managing a department, I would require all counter-offers to be a joint denial/counter-offer form so that the denial is done early and doesn't have to be thought about again (unless the applicant counters your counter like the OP stated, but that is a unique situation).
-If my bank had not not already provided a denial notice and a counter offer didn't close, I would send a denial notice and be done with it.

I agree with Adam. There's the technically correct answer and there's the "what I would do" answer.

We have an application for a transaction that would be HMDA reportable; the appraisal came back in an amount less than expected. The loan officer 'countered' with a lower loan amount and the customer decided to not accept it. The loan was still in the underwriting phase and there was no approval. Would this be treated as a decline due to them not accepting our counter and an AAN needs to be issued or as a withdrawal with no AAN as the loan had not been approved yet?

It is a denial since you failed to grant credit on the terms they applied for and they didn't accept your counter-offer.

Thank you.

On the same topic, but different note. We countered, they accepted, but the withdrew. What loan amount would you report?

If they accepted you counteroffer, the loan amount is reset to the counter offer amount. If they then withdraw, you report the reset loan amount.

I agree with David. To add to what he said, just make sure you document the file to have a clean trail for your auditors/examiners.

Thank you. That is what I thought, but once again compliance is pushing back on this issue.

Well, they are probably pushing back because the commentary to 1003.4(a)(7) is not as clear as it could be. Comment 1 is the only comment under 1003.4(a)(7) that talks about counteroffers. In fact, the original proposed rules and the final rules do not give any further information in this section regarding the covered loan amount and how it applies to counteroffers. Therefore, the only thing we seem to have to go off of is comment 1 that says the following:

"1. Covered loan amount—counteroffer. 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. If an applicant does not accept a counteroffer or fails to respond, the institution reports the amount initially requested.

The challenge with this comment is that the comment only really talks about three instances: 1) when a loan is "granted," 2) if an applicant does not accept a counter offer and 3) if an applicant fails to respond. As you know, these three scenarios don't cover all of the purpose options under Regulation C and "granted" is not a defined term in Regulation C - meaning we don't know if "granted" means 1)"conteroffer approved" or 2)"originated". Therefore, this leaves much question as to applications that are withdrawn, closed for incompleteness, or denied.

If an application is approved but not accepted, comment 2 makes it clear that counter-offer amount (i.e. approved amount) is what goes on the LAR:
[i]"2. Covered loan amount—application approved but not accepted or preapproval request approved but not accepted. A financial institution reports the covered loan amount that was approved."

At this point, if things aren't confusing enough, we get comment 3. Comment 3 to 1003.4(a)(7) tells you to report the amount the applicant applied for in the case of a denied application, closed for incompleteness or withdrawn application.

"3. Covered loan amount—preapproval request denied, application denied, closed for incompleteness or withdrawn. For a preapproval request that was denied, and for an application that was denied, closed for incompleteness, or withdrawn, a financial institution reports the amount for which the applicant applied."

So, the question becomes this: Do we report the loan amount of withdrawn, closed for incompleteness, and denied applications as 1) the amount applied for (based on comment 3) or 2) the accepted counter offer amount (based on comment 1)?

At this point, one may think that this is a gray area and that you just have to choose a camp and be consistent. Fortunately, the 2017 HMDA final rule discussed counteroffers a bit more, but did so in the preamble to 1003.4(a)(8) (rather than 1003.4(a)(7)).

The preample to 1003.4(a)(8) - the section on loan purpose - goes on and on about how accepted counteroffers basically restart the application for Reg C purposes. They make it clear that they expect a counteroffer to take the place of the original application.

Here are just a few of the statements in the preamble to the 2017 final rule under section 1003.4(a)(8):

"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."

And...
"...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."

So the bottom line is this: it appears the CFPB is telling us to report the loan amount based on the accepted counteroffer rather than the original application.