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#2215128 - 06/06/19 03:55 PM Re: App withdrawn - do not have income Compli(cated)
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,025
Bloomington, IN
If the bank has procedures to only provide policy information until they receive certain information,

Are you saying if I call wanting to know general information about your loan products you won't discuss my inquiry with me unless I submit an application?

The following is how I would consider the scenarios presented.

1. If they refused to provide the requested information then there is no application. This is assuming they refused to provide any information and not just the SSN.
2, 3, 3 & 4 - Incomplete application - requires action under Reg. B. However the second #3 would be a prequalification for HMDA reporting purposes.
5 & 6 - depending on interaction between the consumer & LO it could go either way. The way you present it I most likely would lean toward it being an inquiry.
7. Incomplete application - requires action under Reg. B.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2215133 - 06/06/19 04:11 PM Re: App withdrawn - do not have income Compli(cated)
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,025
Bloomington, IN
To add an afterthought to my previous post.

A lot of people "cross-reference" application definitions and tries to applies one regulation's definition to another. You can't do that.

Reg. Z /RESPA defines what an application is for their disclosure purposes.

Reg. C defines what an application is for its reporting purposes.

Reg. B defines what an application is for its consumer notification purposes. Reg. B has a lot broader range for what an application for credit is and the notice of action taken requirements. I would estimate that 9 out of 10 application that do not meet TRID or HMDA application requirements are going to meet Reg. B's requirements.
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#2215168 - 06/06/19 05:29 PM Re: App withdrawn - do not have income Compli(cated)
Inherent_Risk Offline
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Joined: Jan 2017
Posts: 432
"Are you saying if I call wanting to know general information about your loan products you won't discuss my inquiry with me unless I submit an application?"
I don't think so. I'm saying I would only provide you general information about our loan products until you submitted certain information. I've always believed that Reg B defined an application based on how the bank responds to the request, rather than what the customer does. I would (or at least would have prior to this thread) say that as long as the bank is consistent, they can define an application for Reg B based on requiring certain information, as long as they don't communicate any "evaluation" until the consumer gives them all the requested information. I think there is a hard line for any verification documents, but besides that the institution can require whatever they want prior to "evaluating" the request. That's always been my general understanding at least.

Here's an interesting but not that helpful link to a request for comment from 1998 that lays out the issues: https://www.federalreserve.gov/boarddocs/press/boardacts/1998/199803133/R-1008.pdf

It appears that the only official guidance that came out of this was a definition of preapprovals and that preapprovals are applications, which doesn't really answer the many other questions about the inquiry/prequalification/application issues that were raised.

The request does state the following though in reference to the inquiry/application distinction:

"Regulation B allows creditors to establish their own application procedures, including what and how much information to provide to consumers who request information before applying for credit." Hardly concrete (and way out of date), but this does suggest that "application procedures" that may be established go further than just what channel they are accepted through.

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#2215194 - 06/06/19 09:46 PM Re: App withdrawn - do not have income Compli(cated)
David Dickinson Offline
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David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
As I stated in my last post, this is a complicated topic and one that is difficult to fully understand or explain through a few written responses. Again, I spend 2 hours teaching this in a webinar and that's not going to get you a full understanding.

The other side of this topic is Inquiries. Inquiries are not applications and do not trigger disclosures. Here's another part of our Application manual: (Pretty soon you'll have the complete book!) smile

II. Inquiries:

A. Supplying Information:
A creditor is encouraged to provide consumers (business applicants as well) with information about loan terms (i.e. an inquiry). [Commentary to §1002.2(f) #3]


B. Your Response vs. Their Inquiry:
Whether the inquiry… becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks. [Commentary to §1002.2(f) #3]


C. Communication of a Decision:
However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline (or approve) the request (inquiry), and communicates this to the consumer, the creditor has treated the inquiry… as an application (completed) and must then comply with the notification requirements (adverse action)… [Commentary to §1002.2(f) #3] The denial does not have to be explicit in nature and can be construed as any communication that would lead a reasonable person to conclude that an application would receive negative consideration. [FDIC FIL 35-96]


D. Examples of Inquiries [Commentary to §1002.2(f) #4]:

1. When a consumer [business applicants as well] calls to ask about loan terms and an employee explains the creditor’s basic loan terms, such as interest rates, loan to value ratio, and debt to income ratio.

2. When a consumer calls to ask about interest rates for car loans, and in order to quote the appropriate rate, the loan officer asks for the make and sale price of the car and amount of down payment, then gives the consumer the rate.

3. When a consumer asks about terms for a loan to purchase a home and tells the loan officer her income and intended down payment, but the loan officer only explains the creditor’s loan to value ratio policy and other basic lending policies, without telling the consumer whether she qualifies for the loan.

4. When a consumer calls to ask about terms for a loan to purchase vacant land and states his income, the sale price of the property to be financed, and asks whether he qualifies for a loan, and the employee responds by describing the general lending policies, explaining that he would need to look at all the applicant’s qualifications before making a decision, and offers to send an application form to the consumer.


Now about the scenarios you provided. In all cases, they are requesting credit you simply are missing information to make a decision. If the LO responds by talking about policy and not saying whether they qualify, then I can argue it's an inquiry. However, everyone of your scenarios says they tell the LO they want a loan (or similar wording). I think these are applications, but are incomplete applications. They are asking the LO to make a decision and providing the LO with info, but just not enough. The LO then has a responsibility to obtain what they need. Here's how Reg B states it:

The creditor shall exercise reasonable diligence in obtaining such information (to complete the application). [§1002.2(f)] For example, the creditor should request information from third parties, such as a credit report, promptly after receiving the application. If additional information is needed from the applicant, such as an address or a telephone number to verify employment, the creditor should contact the applicant promptly.[I] [Commentary to §1002.2(f) #6]

If the LO needs the SSN and can't get it, the LO must either deny the request or send a NOI. Here's how Reg B states this:
[I]When an application is incomplete regarding information that the applicant can provide and the creditor lacks sufficient data for a credit decision, the creditor may deny the application giving as the reason for denial that the application is incomplete. The creditor has the option, alternatively, of providing a notice of incompleteness under §1002.9(c).
[Commentary to §1002.9(a)(1)#3]

This last paragraph describes a lot of the scenarios you provided. Notice Reg B never says "this isn't an application." Instead, Reg B says you either request the info (with a written notification) or deny the application.

Your last scenario is different. You may have a Reg B application through your portal, but until a property is identified, it's not a HMDA (Reg C) application. It's a prequalificaiton request (for Reg B), but as I said in my previous post, that doesn't mean that it's not an application.

I hope this helps!

P.S. I really messed up the italics in my previous post. I hope you can see where I was quoting the reg and where it was me talking. It's too late to edit, so I couldn't fix it.
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David Dickinson
http://www.bankerscompliance.com

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#2215323 - 06/10/19 07:01 PM Re: App withdrawn - do not have income Compli(cated)
Krit Offline
New Poster
Joined: Feb 2016
Posts: 4
I want to piggy back off this topic, if I can.

We have a "complete" application meaning the borrower provided all info on the 1003. We are working away on the application and the appraisal comes in low. Due to the product guidelines, we have to reduce the loan amount to meet the LTV requirement and we are required to verify 6 months reserves. The borrower no longer has the reserves (according to what is in the file and what is on the 1003). We denied the file due to insufficient funds. Is that acceptable?

The manager of this LO is fighting me on it and said we should have allowed the LO time to document their mistake. *The LO turned it in as a withdrawal but failed to reduce the loan amount, etc. And they didn't meet the 30 day timeframe.

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#2215325 - 06/10/19 07:11 PM Re: App withdrawn - do not have income Compli(cated)
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,025
Bloomington, IN
Not quite sure what you are asking but.

1. Lack of funds to close is a legitimate denial reason.
2. If they missed the 30 day notification period due to misclassifying the action taken then that is a mistake that cannot be corrected.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2215328 - 06/10/19 07:17 PM Re: App withdrawn - do not have income Dan Persfull
Krit Offline
New Poster
Joined: Feb 2016
Posts: 4
Thank you, Dan. I guess I was looking more for confirmation that we were correct in denying the loan. To me, insufficient funds is a reason and we can't cover it up by withdrawing it and allowing the LO to write a memo explaining why they messed up (????) I gave her the example that if it was submitted to u/w as such that they would have denied it for insufficient funds so its the same reason before u/w.

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#2215510 - 06/12/19 01:55 PM Re: App withdrawn - do not have income Compli(cated)
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
So, back to my piece of the puzzle, lol . . . if you consider it an application and do not have any information on what type of loan it is, how do you report the "Intro Rate" field?

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