This is a first for me:

We had an application for a pre approval, which we approved. The borrower provided a sales contract days later, and this loan became an application for Reg Z purposes and an LE was disclosed. The borrower decided they did not want to go through with this application, and "withdrew" the application. Now, I understand this is not a withdrawal, as a credit decision was made in the form a a pre approval. My question it, would you report it as a Pre Approval-Not Accepted, or an Application Approved but not Accepted? I am leaning toward Pre Approval Not Accepted, but its a hybrid of information provided since it was disclosed for Reg Z.

I think once you had the signed sales contract/offer to purchase you went fro preapproved to approved. Thus, I would lean towards Application Approved but not accepted.

^^^^^

I agree.

I am reporting everything on the LAR based on the fact that it is an application for Reg Z purposes. However, a final credit decision was not made approving the application as we did not have an appraisal to make a final commitment. Per the regulation, preapproval approved not accepted should be used when a request for a pre approval was submitted, and the financial institution made a credit decision approving the preapproval request, but the application did not result in a covered loan origination by the financial institution.

So I was leaning in the Preapproval not Accepted direction.

You have a pre-approval program? If you do not, how do you report it as a preapproval. Why was a credit decision not made? What happened to the application? Withdrawn by applicant?

Ok, so YES we have a pre approval program. We did make a decision and issued a pre approval letter, subject to an appraisal and any updated employment/income/asset documentation needed at the time of the final application. Once the borrowers signed the sales agreement, we "flipped" it to an application, did all the appropriate disclosing, and then the borrower withdrew the application prior to our receipt of an appraisal. So, I was leaning toward Pre Approval Approved and Not Accepted since the final application was not actually approved.

Would not you say the application was subject to preapproval and then withdrawn after the preapproval turned into an application?

5. Action taken - application withdrawn. A financial institution reports that the application was withdrawn when the application is expressly withdrawn by the applicant before the financial institution makes a credit decision denying the application, before the financial institution makes a credit decision approving the application, or before the file is closed for incompleteness. A financial institution also reports application withdrawn if the financial institution provides a conditional approval specifying underwriting or creditworthiness conditions, pursuant to comment 4(a)(8)(i)-13, and the application is expressly withdrawn by the applicant before the applicant satisfies all specified underwriting or creditworthiness conditions. A preapproval request that is withdrawn is not reportable under HMDA. See § 1003.4(a).

However, a final credit decision was not made approving the application as we did not have an appraisal to make a final commitment.

We did make a decision and issued a pre approval letter, subject to an appraisal and any updated employment/income/asset documentation needed at the time of the final application.

Amazing how all the facts can affect ones answer to a question.

True. I see this so often. Luv, it's not personal, it's a teaching opportunity to provide all the pertinent facts. There are times we'll see the same question asked by two people at the same bank with slightly different fact patterns seemingly to exclude a point here or there and get the answer they want. But that isn't necessarily the correct answer. Please, all the pertinent fact. This could have really been confusing and misleading had it not been carried all the way thru.

I honestly thought I was clear in how I initially presented it. I suppose I assumed all pre approval letters were conditional based upon an appraisal once the property is identified. RL was kind enough to ask for a few additional details to discuss the situation. I am still unsure how to approach this one. I agree with the way RL has presented it... it could be a withdrawn application based on the pre approval being a conditional approval. That seems to make sense to me. You have to admit, this is a tough one and I am glad to have had the opportunity to discuss details. Now that you have the facts, Dan, Andy, what would you call it?

I agree with Randy. You have a withdrawn application.

Once the property was identified you no longer had a pre-approval request and the applicant withdrew the application before all approval conditions were met.

We also would report as W/D, but I've never been super comfortable with it. Seems like it fits in the definition of preapproval approved not accepted as well, and I've never found anything that clearly states "when you get an address, it's no longer a preapproval."

The validity edit that says "4) If Preapproval equals 1, then Action Taken must equal 1, 2, 7, or 8" has always confused me. If it's approved not accepted or originated after application, it's still a preapproval, but if it's later denied or withdrawn it's not?

I've always struggled with this as well, but we do also report these as W/D. They are pretty rare.

I actually think the commentary is pretty clear on this situation: A financial institution also reports application withdrawn if the financial institution provides a conditional approval specifying underwriting or creditworthiness conditions, pursuant to comment 4(a)(8)(i)-13, and the application is expressly withdrawn by the applicant before the applicant satisfies all specified underwriting or creditworthiness conditions. A preapproval request that is withdrawn is not reportable under HMDA. See § 1003.4(a).

Inherent Risk that is my thinking exactly!

RL- I see what you are saying. The system throws up so many red flags when I mark it as withdrawn it concerns me. I looked a the official interpretation on Action Taken for conditional approvals and I am now leaning towards once a pre approval for HMDA, always a pre approval for HMDA.

Official Interpretation Action Taken-conditional approvals. If an institution issues an approval other than a commitment pursuant to a preapproval program and that approval is subject to the applicant meeting certain conditions, the institution reports the action taken as provided below......and it goes on from there how to report action taken on a conditional approval.

So, I am thinking this would not necessarily fall under the "conditional approval" mentioned in the commentary regarding a withdrawn application.

Let's try taking this one step at a time.

1. If you have a formal preapproval program, and you approved the pre-approval application and then nothing else happened, you would report that as preapproval requested "1" and action taken as "8".

2. Once the borrower provides you a property and you have an actual mortgage application, then your preapproval requested would also still remain as "1", but then your action taken will be limited to from 1 to 5.

See V617

3) If Action Taken equals 3, 4, 5, or 6, then Preapproval must equal 2.

If a preapproval action taken code isn't used, or a converted loan isn't originated or approved not accepted, the preapproval code should always be 2.

Hmm, I guess that is true. Thanks

But what version are you quoting from hmdagal. In the 2023 version it is V613.

I'm wondering how one reconciles the Validity error with the following.

(4) Whether the application or covered loan involved a request for a preapproval of a home purchase loan under a preapproval program.

Official interpretation of Paragraph 4(a)(4)
1. Request under a preapproval program. Section 1003.4(a)(4) requires a financial institution to report whether an application or covered loan involved a request for a preapproval of a home purchase loan under a preapproval program as defined by § 1003.2(b)(2). If an application or covered loan did not involve a request for a preapproval of a home purchase loan under a preapproval program as defined by § 1003.2(b)(2), a financial institution complies with § 1003.4(a)(4) by reporting that the application or covered loan did not involve such a request, regardless of whether the institution has such a program and the applicant did not apply through that program or the institution does not have a preapproval program as defined by § 1003.2(b)(2).

I agree Dan - the FIG does not really follow the commentary.

Probably a slip of my fingers. Thanks!

Dan, since we can't submit with validity errors, we update the PA code.

I understand that is reconciling the PA code to satisfy the validity error but IMO that is not reconciling the validity code with the above regulatory cite.

I'm just glad we opted to forego a pre-approval program when these changes were made.

Revising this topic because I'm running into the same thing. We have an issued preapproval letter, and the client cancelled the app with preapproval conditions outstanding after getting into contract on a specific property.

I disagree with the assessment that it is withdrawn based on 4(a)(8)(i)-5, as this cites 4(a)(8)(i)-13, which specifically excludes commitments pursuant to a preapproval program.

"5. Action taken - application withdrawn. A financial institution reports that the application was withdrawn when the application is expressly withdrawn by the applicant before the financial institution makes a credit decision denying the application, before the financial institution makes a credit decision approving the application, or before the file is closed for incompleteness. A financial institution also reports application withdrawn if the financial institution provides a conditional approval specifying underwriting or creditworthiness conditions, pursuant to comment 4(a)(8)(i)-13, and the application is expressly withdrawn by the applicant before the applicant satisfies all specified underwriting or creditworthiness conditions. A preapproval request that is withdrawn is not reportable under HMDA. See § 1003.4(a).

13. Action taken - conditional approvals. If an institution issues an approval other than a commitment pursuant to a preapproval program as defined under § 1003.2(b)(2), and that approval is subject to the applicant meeting certain conditions, the institution reports the action taken as provided below dependent on whether the conditions are solely customary commitment or closing conditions or if the conditions include any underwriting or creditworthiness conditions."

Am I misreading it?

My gut here is to report 1,2 to differentiate this scenario from one where the borrower cancels before going under contract. Why else would the validity edits allow you to do this and not force you to pick 1,8?

Has anyone gotten any further clarification on this in the last 14 months?

Thank you!