We have a loan request for $160,000 for a home construction. They qualified from an underwriting standpoint and it was contingent on an appraisal. The appraisal came in low at $160,000 and our policy is 85%. The applicant did not have the additional funds to put down and did not move forward with the loan with us. They did go to another bank that financed at a higher percentage.

Is this considered a withdrawn or denial?

It's a denial. They applied for a $160,000 construction loan and the bank was unable to meet that request.

Definitely a denial. For AAN reason, I'd go with "Value or type of collateral not sufficient."

Little different question, and I know I've read other posts about this. But when the appraisal comes back low and the borrower rescinds the purchase offer, before our Loan Committee even had a chance to consider whether we'd make an LTV exception, couldn't this be called withdrawn? The borrower no longer is buying the property, so no longer needs a loan?

Of course IF the borrower wanted to continue with the purchase, we definitely would send an AAN/counteroffer at the lower loan amount if we wouldn't approve the LTV exception, but I think it's different if the borrower backs out of the purchase prior to our final loan decision?

From what you've described I would consider it withdrawn, since no credit decision had yet been made.

Well technically it was credit approved, just waiting on the appraisal. We informed the borrower immediately of the low appraised value, and by the next day, she told us she had rescinded her offer and wanted to withdraw her loan request. I keep reading that if the appraisal comes in low, that it must be considered denied if we wouldn't make the loan at the originally requested loan amount. My question in this case is we didn't even look at it to consider an LTV exception, she withdrew first.

CRL, I completely understand your question, and you are on the right path by asking it. I generally view these situations as a denial, and would recommend sending an AA notice as the conservative approach. Now, the way you worded your original question, I could see where an AA notice may not technically be required (given more specifics we don't have), but I personally wouldn't want to have this discussion/argument with an examiner and would just send the AA notice to be done with it. Here is what I mean: If you hadn't told the applicant that they needed a certain LTV (which we don't know what was said to the applicant) and they had no way of knowing you might/were going to deny the loan, then I could see it be considered withdrawn and not require an AA notice. HOWEVER, what usually happens is the loan officer tells the applicant they need a certain value and when the value comes in low, the applicant assumes the loan can't be done so they back out or "withdraw", but this isn't a really a "withdraw" for Reg B purposes as your loan officer has essentially told them you won't do the loan (you are denying them) because the value came in low.

So for your specific question, I would do one of two things. First, I would just send the AA notice and be done with it. Alternatively, (and you may be auditing this after the fact), I would want clarification from the loan officer as to what was actually said. If they borrower was lead in any way to believe the bank wouldn't do the loan due to the low value, then I would consider it a denial. If they weren't lead to believe the bank wouldn't do the loan, then you might be okay - but I would caution that this should be an exception to the rule and not a regular occurrence or you could find your risk of examiner/auditor scrutiny increasing.

Again, I think you are on the right track with your question. I've personally seen instances in the past where LOs were steering applicants to "withdraw" when an appraisal comes in low, but examiners ended up citing a systemic violation saying that by steering the applicant, the loan was actually denied (since the LO was basically telling the applicant the loan can't be done as applied for).

I agree with Adam's scenario. In a lot of cases, I look at the application definition and the commentary. Although it discusses prequals and applications, the theory behind the logic seems to cross into your scenario

1002.2(f)
3. When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under §1002.9. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks.

The bank basically informed the customer that they might not qualify, therefore (IMHO) that the loan request was denied.