We have an application for the purchase of home that was still under construction (pre-sold spec). Construction was supposed to have been completed within a couple of weeks of the initial intake of the application. The completion of the home has been put on hold due to the contractor having difficulties getting all of the finishing items needed. We cannot obtain an appraisal on the home (full appraisal required due to our policy) until it is further along in construction. After waiting a significate amount of time the lending department would like to close this file as incomplete as we can not make a credit decision without the appraisal. No incomplete letter has been provided to the applicants (due to this not being information the borrower can supply). And our lending department does not want to deny the file as incomplete. Our rate lock is also expired now.

My question is can we have an incomplete file without having it denied as credit application incomplete or without having provided an incomplete letter? I thought it was one of the other. I didn't think there was a third path to get to an incomplete file. Also I am questioning if this should be incomplete or a different route taken.

I am still learning lots so hoping someone has some insight on this situation.

6. Action taken—file closed for incompleteness. A financial institution reports that the file was closed for incompleteness if the financial institution sent a written notice of incompleteness under Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not respond to the request for additional information within the period of time specified in the notice before the applicant satisfies all underwriting or creditworthiness conditions. See comment 4(a)(8)(i)-13. If a financial institution then provides a notification of adverse action on the basis of incompleteness under Regulation B, 12 CFR 1002.9(c)(1)(i), the financial institution may report the action taken as either file closed for incompleteness or application denied. A preapproval request that is closed for incompleteness is not reportable under HMDA. See § 1003.4(a) and comment 4(a)-1.ii.

I have already sent that commentary to my lending people along with 1002.9(c). I expressed to them why it was not incomplete per ECOA due to the completion of the house being outside of our applicants control and that it is not something they can provide. I also let them know that HMDA has strict definitions on denied, incomplete, approved not accepted and withdrawn that I need to follow for each application.

I am still getting push back that this is incomplete. So I thought well I must be missing something. So I came here to ask.

Generally, I always felt like this is a pretty confusing gap in the commentary of 1002.9, when the only thing(s) missing are not in the applicant's control. Don't have a complete application trigger to 1002.9(a) clock and don't have anything in borrower control to trigger 1002.9(c). What I fall back on is commentary for the definition of an application 1002.2(f). Lender has to act with reasonable diligence to complete the application.

6. Completed application - diligence requirement. The regulation defines a completed application in terms that give a creditor the latitude to establish its own information requirements. Nevertheless, the creditor must act with reasonable diligence to collect information needed to complete the application. For example, the creditor should request information from third parties, such as a credit report, promptly after receiving the application. If additional information is needed from the applicant, such as an address or a telephone number to verify employment, the creditor should contact the applicant promptly. (But see comment 9(a)(1)-3, which discusses the creditor's option to deny an application on the basis of incompleteness.)

More specific to your situation, "the lending department would like to close this file as incomplete" sounds a lot like "A refusal to grant credit in substantially the amount or on substantially the terms requested in an application," which is the definition of an adverse action, and you have to provide notice "(ii) 30 days after taking adverse action on an incomplete application, unless notice is provided in accordance with paragraph (c) of this section;"

If the house is not going to be completed in a time frame that is acceptable to the bank, deny the loan for that reason and tell them to come back when they have a completion date. You are not required to keep an application open indefinitely.

Yes and that is what I originally wanted them to do was to deny it as incomplete but they did not like that option at all. It took a bit of conversation to get everything figured out.

They did not want to deny it and make the customer frustrated that we "denied" their loan. They just wanted me to close it out as incomplete with no denial and no incomplete letter. I bucked at that and started sending them regulation citations. After we got together and chatted we were able to come to terms as to how to handle the file. I gently reminded them that I needed to follow Reg B and HMDA rules.