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#2269998 - 05/03/22 07:14 PM Preapproval Program
terpsfan Offline
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We are evaluating whether to start a preapproval program. Would it still be a preapproval if the approval was based on current rates and there is no rate lock? Does it matter that rates could go up after the preapproval is issued causing the customer to no longer qualify? Would it still be considered a preapproval?

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#2270132 - 05/06/22 07:24 AM Re: Preapproval Program terpsfan
terpsfan Offline
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Also would it be deceptive to issue a preapproval when it is subject to program guideline changes out of our control?

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#2270133 - 05/06/22 11:08 AM Re: Preapproval Program terpsfan
rlcarey Online
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Galveston, TX
Well, your pre-approval document that you provide to the borrower should be written by your legal counsel and provide for such things as the interest rate issue. As far as program guideline changes, those are usually known in advance. How long are you expecting to provide for an expiration on your preapprovals?
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#2270137 - 05/06/22 01:21 PM Re: Preapproval Program terpsfan
terpsfan Offline
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Would it still be a preapproval for HMDA purposes if it is subject to these items? We are looking a 90 days.

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#2270150 - 05/06/22 02:27 PM Re: Preapproval Program terpsfan
terpsfan Offline
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We will be drafting language that the commitment will be subject to changes in the interest used to qualify and changes in program and underwriting guidelines but these don't seem to fit the definition of a preapproval under HMDA.

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#2270239 - 05/10/22 12:54 PM Re: Preapproval Program terpsfan
terpsfan Offline
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Would these items fit under?

1003.2(b)(2)iii
(b) Application—(1) In general. Application means an oral or written request for a covered loan that is made in accordance with procedures used by a financial institution for the type of credit requested.

(2) Preapproval programs. A request for preapproval for a home purchase loan, other than a home purchase loan that will be an open-end line of credit, a reverse mortgage, or secured by a multifamily dwelling, is an application under this section if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. The written commitment may not be subject to conditions other than:

(i) Conditions that require the identification of a suitable property;

(ii) Conditions that require that no material change has occurred in the applicant's financial condition or creditworthiness prior to closing; and

(iii) Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the financial institution ordinarily attaches to a traditional home mortgage application.

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#2270243 - 05/10/22 02:04 PM Re: Preapproval Program terpsfan
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One consideration is that labeling and marketing something as a “pre-approval” when it’s not within regulatory text, and in the expectations of the industry that relies on pre-approvals, could be deceptive or abusive (depending how those definitions in UDAAP are parsed). You may wish to look more toward “no material change has occurred in the applicant's financial condition or creditworthiness” as to whether that pre-approval eventually could morph into an application or not.

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#2270247 - 05/10/22 02:24 PM Re: Preapproval Program terpsfan
terpsfan Offline
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My confusion is that our preapproval would be subject to rate changes, program guideline changes, and secondary market investor guideline changes so it does not seem to be a preapproval by the regulatory text but I am not sure how any institution could issue preapprovals without it being subject to these items.

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#2270263 - 05/10/22 05:01 PM Re: Preapproval Program terpsfan
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HMDA's commentary states "Conversely, a program that a financial institution describes as a “preapproval program” that does not satisfy the requirements of § 1003.2(b)(2) is not a preapproval program for purposes of Regulation C." So it seems it’s pretty black and white, to me anyway. You might probably violate HMDA if you record and report your program as it’s proposed, and also risk a UDAAP citation if you market your program as proposed as a pre-approval program when it's technically not. ECOA’s commentary under 1002.2(f) also addresses preapprovals.

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