We had an applicant apply for a loan to build a home. The loan officer denied him based on the fact that his current debt to income ratio was outside our lending guidelines. She never looked at or considered collateral. Now he's back saying he overstated some of his debt and wants to know what he does qualify for. We can figure out how much he can borrow based on his current debt and income but we would also want collateral. Is it a problem to start talking about collateral now, since we didnt' talk about it when he originally came in and didn't deny him on that basis? Also, does Reg B discuss preapprovals? - I can't find anything on that either because I'm entering panic mode or it's not there

I'm 'assuming' that when the customer applied for a loan to build the house he was offering that property as collateral. I'm lazy this afternoon and don't necessarily want to look anything up, but a pre-approval denial does require an adverse action. The lender probably never looked past the debt/income ratio and when that was too high decided to deny the loan. Is the customer complaining about the collateral now?

I don't think they ever really discussed collateral and since he owes a large amount on the lot I suspect he has very little equity in it at all. I worry that he may come back with discrimnation complaints later since the orginal denial said nothing about collateral and now we want to require it (or perhaps a qualified cosigner)

When I discuss this issue with lenders I tell them they should put all the reasons for the denial (limiting to 4 or so) for just this reason. You don't want to deny it for one reason, then find it was incorrect and then state something else. This makes the Bank look bad.

I am assuming when the loan officer denied the loan based on D to I that an AAN was sent.

Now that he has come back in to offer additional information, I would considered this a new loan request and base the decision on the information you now have. Since he is building a home, I also assume that will be your collateral, but if you want additional collateral, there is nothing keeping you from making a conditional approval.

You can tell him you may be able to grant him a loan under the following conditions and spell them out. If he declines the conditions of approval, send him another AAN with the reason why you denied his loan request.

The first time he came in sounds like an inquiry only and you did not get an application. You can define what is required to constitute an "application" and that is what triggers the adverse action notice.