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#2239953 - 07/22/20 01:36 PM Adverse Action Reason
niche girl Offline
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Got a debate going on about what reason for decline to use for files in the Covid era that are having to be declined due to credit scores that would have been acceptable before investors started raising their score minimums temporarily in this environment. For instance, someone with a 620 might have qualified in February, but not now with investors raising new minimums to 640. But at a 620 there are customers who don't have what we would term traditionally "bad" credit to reference. I've getting two sides to this argument. One is that it is credit that is causing the decline even if it isn't bad, so just select one or two of the factors that caused the score per the bureau and decline on those since those are the underlying cause of the score as we can't cite the score as the reason. The second school of thought is that we have temporarily suspended offering products the customer would normally qualify for so we don't at this moment have a product to provide customers with scores below 640 even though their credit is not bad or has no factors we could reasonably point to for decline. So because it is a temporary lack of a product, should we decline for a generic reason that reflects that we don't have a product available to offer them based on their credit profile? If so, what would be a good wording for that reason?
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Lending Compliance
#2239955 - 07/22/20 01:51 PM Re: Adverse Action Reason niche girl
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
So because it is a temporary lack of a product, should we decline for a generic reason that reflects that we don't have a product available to offer them based on their credit profile?

You don't lack the product, you still offer mortgage loans you just don't currently offer them under the terms the applicant qualifies for.

You have to provide the reasons they don't qualify for you current "products".
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#2239959 - 07/22/20 02:09 PM Re: Adverse Action Reason niche girl
swiggles Offline
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swiggles
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Typical reasons I would use......

If the score is, for example, 640. That's not a very high score and there has to be a reason why it's not higher. They either have some sort of derogatory credit that's keeping it that low or they don't have enough qualifying trade lines to raise it higher. I don't think I have ever had an instance where I couldn't cite one of those reasons. We stick specifically to Reg B "model" reasons for decline.

....would be happy to hear other thoughts on this topic.
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#2239969 - 07/22/20 03:40 PM Re: Adverse Action Reason niche girl
Inherent_Risk Offline
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1) Completely agree with Dan. Just because UW standards change doesn't mean the product changes.
2) The reg doesn't say you "can't cite the score as the reason." It just says it can't be the ONLY reason ("Statements that the adverse action was based on the creditor's internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor's credit scoring system are insufficient."). In fact, if the credit score is an automatic denial reason, then I would argue you HAVE to include it as a reason ("When a creditor denies the credit request because of an automatic-denial factor, the creditor must disclose that specific factor.")
3) We generally map the key factors to the sample ECOA reasons as well. I do not think this is required or helpful though. Although the reg says listing the key factors does not satisfy the ECOA requirement to disclose specific reasons, I don't read that to mean they can't be essentially the same thing when those are in fact the reasons. I know there's debate about this though, but I think the AAN would be more accurate if it just listed the key factors under the reasons as well when an app is denied for credit score. They are more specific than the ECOA reasons.

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#2240756 - 08/06/20 06:14 PM Re: Adverse Action Reason niche girl
niche girl Offline
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Joined: Jan 2012
Posts: 163
Thank you all. Very good explanations.
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