Skip to content
BOL Conferences Top Gun 23
Page 2 of 2 1 2
Thread Options
#2235333 - 04/21/20 05:36 PM Re: Adverse Action Notice for Value or Collateral Lizz
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,365
Galveston, TX
A property evaluation has nothing to do with the consumer - the property as I said before is an inanimate object. The appraiser is evaluating the property and not the consumer. The value of the property has nothing to do with the credit capacity, character, etc., of the consumer.

From the FTC publication: 40 YEARS OF EXPERIENCE WITH THE FAIR CREDIT REPORTING ACT

Personal observations. A report that consists solely of information communicated by a person who drives by the consumer’s residence, a property appraiser who evaluates property, or an investigator who makes a video recording of events, is not a “consumer report” because it consists solely of the experience of the party supplying the report.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
Lending Compliance
#2235335 - 04/21/20 05:59 PM Re: Adverse Action Notice for Value or Collateral Lizz
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,027
Bloomington, IN
What does this $50k difference represent? It sounds like credit CAPACITY to me

What does that have to do with the the consumer's credit capacity? I'll bet you the proverbial $1 to a hole in doughnut he has the capacity to service either debt. It's just the collateral offered exceeds your LTV which has to do with the bank's capacity to recover the debt if needed. It has absolutely nothing to do with the consumer's credit capacity, character or mode of living.

Would we go 120% no, but we have done several 80/20 loans.

As you said you're sailing this boat alone.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#2235336 - 04/21/20 06:20 PM Re: Adverse Action Notice for Value or Collateral Compliance NABW
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
Originally Posted by Compliance NABW
Well, they do come from an outside source at the end of the day (the Bank), but whatever. I'm likely sailing this boat alone, lol. I fail to see how you can say it has no bearing on credit capacity @RR joker. The value of the collateral is often directly related to how large of a loan one can obtain. So, for an average Joe borrower that comes in and applies for a $240,000 mortgage loan and their house is worth $200,000, your bank would readily make it to them because the collateral value has no bearing on credit capacity? Or, would the 120% LTV make you say, "Nah, we can't do a $240,000 loan, but we can do a $190,000 loan?" The asset value differentiates here between getting a $190k loan and a $240k loan. What does this $50k difference represent? It sounds like credit CAPACITY to me.


You've never been a loan officer, have you?
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#2235338 - 04/21/20 06:48 PM Re: Adverse Action Notice for Value or Collateral Lizz
TB 12 Offline
Power Poster
TB 12
Joined: Feb 2005
Posts: 6,559
Foxboro
laugh

4 C's of credit:

Character
Collateral
Credit
Capacity
_________________________
Best QB Ever. Worst Defense Ever.

Return to Top
#2235438 - 04/22/20 03:58 PM Re: Adverse Action Notice for Value or Collateral Lizz
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
No, I haven't been an LO, nor would I ever want to be. But, I am familiar with the 4 C's of credit, but that's not really the same thing as FCRA. In some cases a Bank would do the 120% LTV, because they are not relying at all on the collateral as a source of repayment. If the borrower is making $3 million per year, many community banks could give a cr*p about what the LTV is. But, if a lender is looking to collateral for repayment, then this does affect capacity, i.e. the debt load that the borrower can take on (or actually receive in this case). It affects the consumer because it's his/her asset. $5 million in the bank is an inanimate object as well, but it's dang sure going to play a role in a lender's credit approval process.

@RL . . . that excerpt is in relation to Section 603(d)(2)(A)(i). We are discussing Section 615(b). I don't see anywhere in 615(b) that states that the information from the 3rd Party that is not a CRA is required to be a consumer report. All that we are really left with is to make an interpretation of the following:

DENIAL OF CREDIT BASED ON INFORMATION FROM “PERSONS OTHER THAN CONSUMER REPORTING AGENCIES” Subsection (b)(1) imposes requirements on a creditor when it denies, or increases the charge for credit, based on information from a non-affiliated “third party” source, which is a source other than (1) a CRA, (2) the creditor’s own files, or (3) the consumer’s application. Examples of “persons other than consumer reporting agencies” whose information is covered by this section include application references (creditors, employers, landlords) or the public record. This subsection also requires the creditor to provide a disclosure when it denies a consumer’s application based on information obtained directly from another lender, even if the other lender’s name was furnished to the creditor by a CRA.

We can infer from the examples provided (creditors, employers, landlords) that appraisers aren't in the same category and, thus, are not what is meant here. But, that is inferential, not proof based evidence. Anyways, based on the examples provided, you guys are likely right in the eyes of FCRA. However, I don't think it is necessarily as clear as you are making it out to be.
Last edited by Compliance NABW; 04/22/20 04:18 PM.
Return to Top
#2235439 - 04/22/20 04:04 PM Re: Adverse Action Notice for Value or Collateral Lizz
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,027
Bloomington, IN
But, if a lender is looking to collateral for repayment, then this does affect capacity,

The collateral does not affect the borrower's capacity to repay the loan. In fact if these are loans subject to TRID and the ATR requirements then you cannot take the value of the dwelling into consideration for the borrower's ability to repay the debt.

If this is happening in your shop then you may want to reexamine your underwriting criteria.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#2235443 - 04/22/20 04:12 PM Re: Adverse Action Notice for Value or Collateral Lizz
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
This ^^^
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#2235446 - 04/22/20 04:22 PM Re: Adverse Action Notice for Value or Collateral Lizz
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
@Dan, yes, understood. I am using Capacity in terms of debt load (how much debt one can take on), not from an ATR standpoint. I am not aware of "credit capacity" being specifically defined by FCRA. My point is the lender is assessing it in order to judge the size of the loan you can qualify for, thus directly impacting the amount of debt that the borrower can take on.
Last edited by Compliance NABW; 04/22/20 04:26 PM.
Return to Top
#2235450 - 04/22/20 04:41 PM Re: Adverse Action Notice for Value or Collateral Lizz
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,365
Galveston, TX
I can afford payments on a loan for $500,000 and I have $3 million in other assets, but if I ask for a loan for $300,000 and only offer a house worth $150,000 for collateral, what does that have to do with credit capacity or what I can qualify for??

You deny the loan based on inadequate collateral offered. It has nothing to do with my credit capacity or credit standing or anything else about me.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2235451 - 04/22/20 04:51 PM Re: Adverse Action Notice for Value or Collateral Lizz
Dan Persfull Offline
10K Club
Dan Persfull
Joined: Aug 2002
Posts: 47,027
Bloomington, IN
Collateral has no bearing on the amount of debt load I can take on. It only matters to the lender for how much they are willing to lend me without collateral. When the lender does require collateral they have set LTVs that they cannot or will not agree to exceed regardless of my capacity to repay the debt. I may have the capacity to repay a $1,000,000 debt but you being willing to loan me $1,000,000 without sufficient collateral is a different story.

Anyway, since you were putting so much emphasis on the collateral I just wanted to make sure the TRID and ATR requirements weren't getting loss in the shuffle. smile
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Return to Top
#2235507 - 04/23/20 03:17 PM Re: Adverse Action Notice for Value or Collateral Dan Persfull
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
I appreciate the responses. I get all that and agree. One may have the ability to repay debt regardless of the collateral, it is the Bank that is using the collateral value as a decisive factor and not the ability to repay from income, etc. But, that is exactly my point in the FCRA discussion here. Once the Bank chooses (because it is a choice whether because of policy or not) to use the LTV as a decisive factor, then they are utilizing an asset held by the applicant to deny credit.

"Whenever credit . . . is denied . . . either wholly or partly because of information obtained from a person other than a consumer reporting agency bearing upon the consumer's creditworthiness, credit capacity."

My argument is that once they make that choice to use the collateral value as a deciding factor, then this does result in it having a bearing on creditworthiness and credit capacity, as those terms are understood in a generic manner. It impacted whether they were worthy to receive the extension of credit and it impacted the capacity (debt load) the amount of the extension of credit they could recieve. Anyways, I explained my logic as best I could. It makes sense to me, but I can see that others don't come to the same conclusion, or perhaps even interpret the terminiology in the same manner. Thank you all for the discussion!

Return to Top
#2235510 - 04/23/20 03:24 PM Re: Adverse Action Notice for Value or Collateral Lizz
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
I agree with all that have replied that collateral is not something that triggers the FCRA notice. The FCRA requirement is about telling the consumer what THEY have wrong with THEM, not about collateral. Here's how we explain this in our Denial training manual:

If adverse action is taken concerning consumer credit (not deposit accounts or other applications) because of information obtained from a person other than a consumer reporting agency (i.e. employer, landlord, other banks, etc.) and the information reflects upon the consumer’s credit worthiness, credit standing, capacity, character, general reputation, personal characteristics, or mode of living, the bank must disclose to the consumer his/her right to know why she/he was denied and that she/he must make a written request for that information within 60 days.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2235528 - 04/23/20 04:29 PM Re: Adverse Action Notice for Value or Collateral Lizz
swiggles Offline
Power Poster
swiggles
Joined: Aug 2001
Posts: 7,333
NAWB, you might need to switch gears and contemplate what examiners/auditors expect to see. I would venture to say that no one in this discussion includes an FCRA disclosure or scores if LTV, alone, is the deal breaker. And no one...just a guess...has ever experienced examiner/auditor criticism for not including the disclosure for an LTV denial. And I bet you dollars to donuts that you WILL receive criticism/violations if you DO include it. And finally, you're not likely to win the above argument with examiners/auditors...as they will most likely have the same opinion as the experts on this thread who have rendered their opinions. Why take the chance? Just go with the tried and true industry standard that has rocked along for more years than I have been in banking....not saying how many exactly...........
_________________________
The more you sweat in training, the less you bleed in battle.......

Return to Top
#2235567 - 04/23/20 08:15 PM Re: Adverse Action Notice for Value or Collateral Lizz
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
@David - Thank you for the input. My reply is what the consumer has wrong with them is their asset wasn't worth enough, just like they didn't have enough money in the bank.

@swiggles - I don't know if one would get in trouble here for, in essence, providing more detailed information about the denial. But, other than that, I agree. I'm moving on smile.

Return to Top
#2235569 - 04/23/20 08:17 PM Re: Adverse Action Notice for Value or Collateral Lizz
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
My reply is what the consumer has wrong with them is their asset wasn't worth enough, just like they didn't have enough money in the bank.
That's what you tell them in the Reg B portion of the denial - the reasons.
This is not a requirement of the FCRA.
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2235576 - 04/23/20 08:34 PM Re: Adverse Action Notice for Value or Collateral Lizz
David Dickinson Offline
10K Club
David Dickinson
Joined: Nov 2000
Posts: 18,762
Central City, NE
It's not a violation to over disclose this portion of the FCRA (it is to over disclose the use of a consumer report), but it's extra work if the customer requests the info you are disclosing. Why do that to yourself (and to your customer)?
_________________________
David Dickinson
http://www.bankerscompliance.com

Return to Top
#2246520 - 12/14/20 10:49 PM Re: Adverse Action Notice for Value or Collateral Lizz
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
Denial Based on Third Party Information

Answered by:
Jack Holzknecht
BOL Learning Connect

Question:
In a scenario where the appraised value came in low, would an appraisal be considered as 3rd party information?
Answer:

The second checkbox is checked in Part II of the adverse action notice if, according to the FCRA, the credit is denied either wholly or partly because of information obtained from a person other than a consumer reporting agency bearing upon the consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. The issue of whether an appraiser is such a third party has been the subject of disagreement. We believe an appraiser is such a third party since the appraisal impacts the consumer's credit capacity. A borrower's credit capacity is generally higher in a secured transaction.

Return to Top
#2246521 - 12/14/20 10:50 PM Re: Adverse Action Notice for Value or Collateral Lizz
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
^^^ Fyi . . . the Q & A part of BankersOnline took the same position on this that I did with the same logic regarding credit capacity.

https://www.bankersonline.com/qa/denial-based-third-party-information-0
Last edited by Compliance NABW; 12/14/20 10:53 PM.
Return to Top
#2246530 - 12/15/20 01:34 PM Re: Adverse Action Notice for Value or Collateral Lizz
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 80,365
Galveston, TX
Sorry - Jack is terribly wrong on this one, unless he has additional regulatory sources that are not available to the rest of us. I have been at this for over 40 years and none of the banks I was ever associated with, either as an employee or as a consultant, did this. Not once in those 40 years has a regulator ever criticized a bank for failure to list an appraiser on an adverse action notice as a third party when the collateral value was not sufficient to support the loan transaction.

Heck, if that was the case, you going to cite the NADA used car book when the value of the car offered as collateral is too low? Tell me how that is any different.

You have an inanimate object called collateral. You ask someone to place a market value on that inanimate object. The value placed on that inanimate object has absolutely nothing to due with the applicant. I am just not too sure how that you can say it does. The value of the collateral is the value of the collateral. There is nothing that the applicant can do about it. They cannot contact the third party and correct erroneous information, as that is the whole point of the disclosure in the first place.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2246541 - 12/15/20 03:37 PM Re: Adverse Action Notice for Value or Collateral Lizz
Compliance NABW Offline
Diamond Poster
Joined: Oct 2015
Posts: 1,643
Take it off the Q & A wink smirk

Return to Top
Page 2 of 2 1 2

Moderator:  Andy_Z