Okay, when you take a credit application and pull a credit bureau report, and the credit report indicates bad credit; i.e. 09's recent collection actions, etc., do you, as loan officer, go ahead and take the time to complete a budget worksheet or do you proceed to decline the loan based on the true reason, information found on the credit bureau report? Thanks for input.

It depends on your credit policy. Is the credit so bad that no compensating factors could possibly override the bad credit? If there may be a situation that you would consider to grant a loan with equally bad credit, you would want to be sure to document that you reviewed that factor. This documentation would be important if the file was choosen in a fair lending review in the target group and a file by file comparison was being performed.

Another thing to keep in mind is your written policy. Does it state that you have the authority to reject a loan application? Or does it state that all loan rejections must come from an underwriter? You want to make sure you follow your written policy and procedures.

You should have sufficient flexibility in your procedures to stop processing an app when a declination is inevitable. As noted above, if your policy/procedures state "you will do this on all applications" then that is the assembly line processing you must follow. If you see these type apps increasing, look to change your process and save time.