So, what do you do if based on the information provided, there is no way the customer could afford any amount of a mortgage? Haven't you then turned it into a denial, therefore an app (per the FDIC's guide), now requiring Notice of Adverse Action and GMI under B?

If I tell you that based on the information given, you will qulaify for $1,000, and I offer to take an application to see if we could approve you for that amount, did I turn you down. As long as they qualify for a positive amount we offer to take an application. (However, most of these requests are with our current customers and I have not seen anyone that would not qulaify for some reasonable amount based on the information given, however once we got an application and pull a CBR, that has changed).

I haven't seen one that qualifed for a negative amount yet, but in that case we would provide an AAN. But we wouldn't have collected GMI, becasue 99% of the pre-qualifications are done over the phone.

David, I would like to refer you to the FDIC's booklet entitled "Mortgage Loan Prequalifications: Applications or Not? A guide for complying with regulations B and C". Our examiners refered us to this a few years back and we now consider a "Prequalification" an application and have not been cited for this violation since.

We do not collect GMI on pre-quals and we are a HMDA reporter.

Dan said:

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If we do not have the address we only treat it as an app under Reg B., however we still collect the GMI.

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But are you subject to HMDA? If so, then this is a violation [see the Commentary to §203.2(b)#2].

Anon R Us said:

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The HMDA Commentary to section 203.2(b)#2, which David keeps referring to, only says that institutions are not required to report prequals on the HMDA LAR. It does not address the collection of GMI at all (I know, I'm starting to sound like a broken record). David, perhaps you could quote the exact language in the Commentary that you believe prohibits banks from collecting GMI on prequals?

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If the application is not subject to HMDA (or Reg B's 202.13) you cannot collect GMI. I'm starting to sound like a broken record too. This is a quote from me on my 8th post to this string:

You are not allowed to Over-collect. Collecting GMI when not authorized is a violation of §202.5(d)(3) and (5) for sex and race, respectively. This is usually in the Top 10 violations that the examiners list periodically. I'm sure many bankers on BOL can tell you that they have been cited for over-collection of GMI. If I not authorized to request GMI, I am violating Reg B.

Tberry said:

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David, I would like to refer you to the FDIC's booklet entitled "Mortgage Loan Prequalifications: Applications or Not? A guide for complying with regulations B and C". Our examiners refereed us to this a few years back and we now consider a "Prequalification" an application and have not been cited for this violation since.

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Thanks. I'm very familiar with this document. I could probably quote most of it to you. Prequalifications can definitely be an application, but that doesn't mean you should collect GMI. HMDA prohibits this, in fact. A "Prequalification application" means you have a request for credit AND there is a home identified.

I'm sorry, but apparently my error in the poll above cannot be corrected. Here is the poll one more time. Please vote again:

Collection of GMI on Prequalifications:
We collect GMI on prequalifications and we are a HMDA bank.
We do NOT collect GMI on prequalifications and we are a HMDA bank.
We collect GMI on prequalifications and we are NOT a HMDA bank.
We do NOT collect GMI on prequalifications and we are NOT a HMDA bank.

Thanks. It will be interesting to see the results of this poll - especially if I set it up right this time.

David - My own editorial to add to the poll:
How many will warn their customers that when they get a home purchase, refinance, or home improvement loan, VERY personal, and VERY private information about them can easily be ascertained by just about anyone because the HMDA PUBLIC LAR can easily be matched up with records from the county recorder?

It still amazes me how the Fed dismissed this concern on the last few pages of the revised HMDA regulation. They dismissed it as perhaps being BENEFICIAL to the customer!!! No concern at all about targeted identity theft or hate crime victims.

All it takes is to eliminate the Public LAR and leave it at the HMDA disclosure statement.

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Prequalifications can definitely be an application, but that doesn't mean you should collect GMI. HMDA prohibits this, in fact.

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David, please quote the exact language from Reg C or the Commentary to Reg C or the Getting It Right guide that prohibits the collection of GMI on prequalifications.

Prequals or preapprovals, if a credit decision is being made, are considered applications under Reg B. And if an application is for the purchase or refinance of a primary dwelling, Reg B REQUIRES the collection of GMI. There is nothing in Reg C that changes that. If there is, please quote the exact chapter and verse.

Anon: This is starting to get really annoying. I quoted the EXACT chapter and verse twice already. One More Time:
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The Commentary to §203.2(b)#2 states that a HMDA bank should NOT collect and report on prequalifications. If a bank tried to collect in the "spirit of reg B" they would be violating Reg C.

You are not allowed to Over-collect. Collecting GMI when not authorized is a violation of §202.5(d)(3) and (5) for sex and race, respectively. This is usually in the Top 10 violations that the examiners list periodically. I'm sure many bankers on BOL can tell you that they have been cited for over-collection of GMI. If I not authorized to request GMI, I am violating Reg B.
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Only 5 people have voted in the poll above. Please vote. It will be interesting to see the actual practices that you all have.

Dan,

I think you hit it on the head. Pre-Qual and Pre-Approval are really two different animals with a fine line between them. The key for collecting GMI on purchase and refinance loans is if an application was created under Reg B, regardless if it is reportable under Reg C. The best reference I have seen on this subject - including handy little flow charts is here:

Mortage Loan Applications: Preapprovals or not?

It really describes the Reg B and C requirements in plain english.

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This is starting to get really annoying. I quoted the EXACT chapter and verse twice already.

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Actually, I think you quoted it three times, but who's counting?

Sorry, David, I'm not trying to be annoying. All I'm asking for is that you quote, word for word, where it says banks should NOT collect GMI on prequalifications. I can see where it says "Regulation C does not require an institution to report prequalification requests on the HMDA LAR, even though these requests may constitute applications under Regulation B." But I don't see where it says ANYWHERE that banks are not to collect GMI on prequals. As I've said before, the fact that prequals on not required to be reported under Reg C does not exempt them from the GMI requirements of Reg B.

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If a bank tried to collect in the "spirit of reg B" they would be violating Reg C.

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Okay, if an examiner where going to cite me for collecting GMI on prequalifications, what section of Regulation C would he/she cite?

If the examiner were going to cite the section you keep referring to, I would respond that that section only says we are not required to report prequals on the HMDA LAR, which we are not doing. So what section are we violating? The answer is none, because prequals are not subject to Reg C.

With all due respect, I think you are taking the fact that you are allowed to collect GMI on certain types of applications under Reg C without violating Reg B, and twisting that around to say that you are prohibited from collecting GMI on prequals because prequals are not reported. In my view, that's just not a valid interpretation.

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The key for collecting GMI on purchase and refinance loans is if an application was created under Reg B, regardless if it is reportable under Reg C.

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You hit the nail on the head. And the document that you provided the link to supports that statement. That publication states in reference to prequalifications:

"It is essential to remember, however, that the exemption from HMDA reporting requirements does not extend to Regulation B requirements regarding adverse actions or written applications."

That publication also refers to the fact that Reg B requires lenders to obtain written applications for the purchase or refinance of a primary dwelling, and points out that lenders are required to request government monitoring information in connection with those applications. And that requirement, as previously stated, is NOT exempted by Reg C.

From a pratical standpoint, for those of you that don't collect the GMI on prequals, what kind of "application" do you use? And if they qualify for a certain amount of money, find their dream home and come back in for the actual loan, do you make them fill out a RE application?

I have a tough enough time training personnel that it's not ok to get GMI on a car loan when the house is securing the loan.

From a risk standpoint, I'd take the "hit" from the examiners for collecting GMI on prequals if they found nothing else.

Here's the results so far:

We collect GMI on prequalifications and we are a HMDA bank. Responses = 6 or 54%

We do NOT collect GMI on prequalifications and we are a HMDA bank. Responses = 5 or 45%

It seems that this is really close - must be why Anon R Us and I have debated this so much. But, not many have voted.

I shouldn't have used the term "annoying" but I have repeated a few things several times. Here's one more:
Anon R Us said:

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Okay, if an examiner where going to cite me for collecting GMI on prequalifications, what section of Regulation C would he/she cite?

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There is no violation of Reg C for over-collecting GMI. As I have said several times, it is a violation of Reg B - §202.5(d)(3) and (5) - if you over-collect race and sex, respectively.

So David, want you are saying is (just to make sure I understand):

You do not cross the line of creating an application under Regulation B in your prequalification process.

If that is a true statement, then I agree with you.

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There is no violation of Reg C for over-collecting GMI. As I have said several times, it is a violation of Reg B - §202.5(d)(3) and (5) - if you over-collect race and sex, respectively.

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David, now you are really starting to confuse me. You have been saying over and over that collecting GMI on prequals is a violation of Reg C and you keep referring to the Commentary to section 203.2(b)#2 of Reg C as proof.

As you stated in a previous post: "Prequalifications can definitely be an application, but that doesn't mean you should collect GMI. HMDA prohibits this, in fact."

You also stated "If a bank tried to collect in the 'spirit of Reg B' they would be violating Reg C."

Now you're saying it's a violation of Reg B to collect GMI on prequals? Again, please quote word for word where Reg B says that. Keep in mind that I am talking about prequals that constitute an application under Reg B and that are for the purchase or refinance of a primary dwelling.

And what about the quote I provided from the "Mortgage Loan Prequalifications: Applications or Not?" booklet that says just because prequals are exempt from Reg C does not mean they are exempt from the Reg B written application and recordkeeping requirements? Doesn't that contradict what you are saying?

Would any of the BOL Gurus like to chime in with their opinion?