We have an application for a fixed rate loan. Appraisal was requested and when the appraiser goes to make the inspection, he tells us that the borrowers are living in the basement and that the upstairs is not yet complete. When loan officer contacted the borrower, he said that that was true and that it should be complete by March. He requested to withdraw this application and would re-apply when the house was complete. The appraisal was then cancelled. We had not yet completed all underwriting, so I think I report this as application withdrawn for HMDA, but I am unsure of how to treat it for Reg B. Is it considered withdrawn for that as well, or is it a denial and we need to send out an adverse action notice for collateral? These situations are always confusing to me. Thanks for any advice.

I am going to assume from your comments the loan officer most likely informed the applicant they could not approve the loan based on the condition of the property. If that assumption is correct you have a denial under Reg. B.

Thank you Dan.

Examiners will roast a bank that tells customers to WD rather than be denied, "because if you don't I'll deny the loan and that looks bad on you." Well, no denials makes the bank look better and especially if minorities, females, etc. are the ones more often being told this. It's a discriminatory practice and an attempt at shielding the bank from denying those protected by Reg B and fair lending.

I'd nip this one in the bud and ensure there are not other instances of this advice.