From one of our offices: We have a customer who wants a loan - on a trailer. He is being very pushy and rude to our loan officer. He is basically telling her what he will and won’t do. No one is getting warm and fuzzies on this situation. The problem lies in the fact that on the face of it we do not have a reason to deny the loan. He has made comments to the loan officer that cause concern, but how do we document that as reason to deny. She does not want to do the loan, but the VP of Lending is telling her she can’t deny it. He has said that he’s going to buy his trailer and then quit his job the next day to start a business. I thought we could ask them about potential changes in income as a reason to deny. How do we document something like this? Also, he has stated that he isn’t going to put insurance on the trailer. When he was told that we would then force place insurance he stated that he would put insurance on the loan and then cancel it after he bought the trailer. To me the whole situation seems really fishy, but I have nothing concrete (on the credit report or anything) to deny on. The other weird thing is that he is driving over an hour each way to try to do the loan here, but talked about going to an FI where he lives AND he’s been here every day this week, so he has driven a minimum of 6 hours for this.

What can I tell them? Thanks

Weird that he is stating he intends to default on the terms of the loan (assuming your note requires hazard insurance) before he even gets the loan. Don't forget if he intends to live there, dirt or no dirt ATR applies. In my opinion deny him based on information provided by him - his intent to immediately stop his current income stream, and his intent to default on the note (state it differently though). Good luck.

Thanks Gertie!

We have a compliance exam going on and I asked the EIC about this. Assuming the potential borrower didn't mention that they were intending to default, the EIC said that you can use the other box on the Adverse Action Notice and put verbally abusive and make sure to document in the customer file the details.

I am dealing with a similar scenario, however we question the mental capacity of our borrower to understand the loan terms. The worst part is, the realtor is with them each meeting and they dont seem to understand the difference between renting and owning a home. Basic things such as homeowners insurance versus renters insurance are lost on them. We fear fair lending should we deny but also fear this will turn south down the road because they do qualify for a loan based on SSI income. Thoughts?

Do you have a community outreach resource you can contact? I'd start there or with your bank attorney for guidance on how to proceed.

We have recommended that to the realtor multiple times. At this time we are trying to talk them out of putting a contract in on a house until a full blown pre-approval can be obtained. We are questioning the livability of the property they wish to purchase now. We have continually suggested they rent. After another meeting today, we have decided not to pursue the loan in the best interest of the borrowers. I know this isnt ideal in the eyes of fair lending, but neither is setting these people up for failure and them living on the streets when this goes south. Sometimes you have to make the ethical decision.

You might want to file a complaint with your Real Estate Agent's State regulatory body regarding their lack of care for a client that is apparently challenged. Sounds like they only care about the R/E commission.

No offense, but does anyone have any other insight into my original question on this post? Thanks.

I agree with Gertie. Document the conversation and deny for lack of stable income and the indication that said he planned to default on the loan covenants after the loan is made.

Neither denial reason would be based on a protected class issue.

I too agree with Gertie. I actually just published a video about a similar (but different) situation. I will PM you the link, but in short, one option you might consider is sending the version of the AA notice (model form C-5 from Appendix C to Regulation B) without the denial reasons as permitted in 1002.9(a)(2)(ii), where you just give them a statement that they have a right to receive the specific reasons, if they want them. Odds are they won't request the reasons, but if they do you could provide them then. Either way, you still need to document your file as to why you denied the loan and, like Randy, I don't see any protected class issues with your situation.

I agree with this 100% and have stated here many times that character still matters. If you don't like someone, you don't have to make them a loan. Just because they are good on paper, does not make it a good loan decision. I was an FDIC examiner and was a loan officer. My "gut" often said "don't do this" when they looked okay on paper or "this is a solid person" when they didn't look so good on paper. The problem is we have let fair lending move away from this type of thinking.

I would use the "other" box on the denial and put "Character" on the blank line. I would then have documentation that tells the whole story. No examiner is going to question this.

Thank you so much, David! This is very helpful and it's always good when a longtime expert weighs in and provides supporting info.