I have a scenario where the loan was approved after determining that MI was required because the appraised value came in lower than expected, pushing the LTV over 85%. The borrower withdrew the loan stating that "it's not a good time to refinance" and with the low appraisal they would lose money because "I don't have 20% equity".

I don't believe that Withdrawn fits the scenario because we issued an approval (decision made).

Would this be Approved-not-Accepted or is this a Denial for HMDA reporting?

A loan cannot be withdrawn after a decision is made and given to the borrower. It's ANA.

Sounds like a counter-offer from a Reg B standpoint and a denial.

I agree with Truffle that a loan cannot be withdrawn after a decision is made. However, I'm not sure we have enough information here to rule this out as a denial. I don't know the specifics of the situation, but I'm question whether you refused to grant credit in substantially the amount or on substantially the terms requested. In other words, it sounds like the borrowers may have been looking for a PMI-free loan, but since the appraisal came in low, they either needed a larger downpayment or PMI.

So my question is this: was this really a counteroffer, and if so, what happened?

I bring this up as I have seen issues where lenders have been known to "steer" applicants into saying they want to withdraw, when in fact, the bank isn't going to do the loan as originally requested. I've even seen examiners discover this during a HMDA review and cite both Reg B and HMDA violations (Reg B for not sending an AA notice and HMDA for not reporting it as a denial).

In addition, comment 9 to 1003.4(a)(8)(i) provides a few options on how counter-offers are to be reported, one of which could be a denial.

Thank you for your comments and questions. I went back to the loan and did some additional digging. The loan was in underwriting and there were credit related conditions outstanding, so it cannot be Approved Not Accepted. My initial post was incorrect in regards to the credit decision.

A few of the conditions were related to explanations on undisclosed debt and REO. The notes indicate that the MLO, MLOA, or Processor reached out to the borrower for the status of the outstanding conditions and the borrower responded by saying "I don't think it's a good time to refinance my mortgage. The appraisal is low and I ill be losing money if I decided to refinance because I don't have 20% equity."

Does adding MI constitute a counter offer? The loan terms (loan amount, interest rate, program, etc.) were not changed, and we were still willing to continue reviewing documentation to clear the outstanding conditions. We had not denied it outright, but were waiting for additional documentation when the borrower canceled. I believe that it still requires an Adverse Action Notice per Reg B, but could be coded as Withdrawn for HMDA.

You gave them an LE without MI. I am not sure how adding MI based on a low appraisal is not a counter-offer.

I agree with Randy that this sure seems to be a counter-offer. The bottom line is that you wouldn't do the loan without MI, so it was either a counter-offer (if they had accepted it) or a denial. It sounds like they didn't want to proceed with the counter-offer, so this would be a denial for both reg B and for HMDA.

From comment 9 to 1003.4(a)(8)(i): "If a financial institution makes a counteroffer to lend on terms different from the applicant's initial request...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."

Just to add to this, I don't always look at what the borrower says if they have "withdrawn" because I have seen instances where it appears to be a withdrawal, but is actually a denial. (See my prior post.) To me, I want to look at the bank action over the customer statement as the customer statement doesn't always align with the action taken by the bank.

Thank you for your input. I agree with the denial for rejecting the counter offer.

I understand that the borrower/customer statements don't always align with the action taken by the lender, but the reg does say that if the withdrawal was requested prior to a credit decision then it should be reported as Withdrawn. Also, someone else told me that MI is not a loan term, so this would not be considered a counter offer.

rlcarey, your comment about having provided the LE without MI helped put that into perspective.