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#898688 - 02/01/08 11:14 PM Is this an application?
Chocaholic Offline
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Joined: Aug 2005
Posts: 443
Northwest
With the latest drop in fed rates, we have received a couple of calls from existing loan customers, asking if we would reduce their current loan rate... we do not ask for an application ... we let them know what we will do..i.e. yes xx is rate and $$$ is the fee. If they don't accept.. do we need to send out any adverse action notice? I am assuming we would, if we would not reduce the rate.. In this case though the rate we offered was fine,they just did not want to pay a fee. I am sure we will get more of these..

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#898732 - 02/02/08 12:31 PM Re: Is this an application? Chocaholic
rlcarey Online
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rlcarey
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Posts: 83,219
Galveston, TX
There has been no denial of credit. The discussion involved a possible modification of terms on existing credit. Regardless of the outcome, the customer still has the loan. So, I don't see a connection to adverse action. You did not do anything adverse to the original credit. If they applied for a new loan at a lower interest rate and you said no, that would be different.
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#898755 - 02/02/08 04:47 PM Re: Is this an application? rlcarey
Richard Insley Offline
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Richard Insley
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Toano, VA
I take a more cautious approach and see this as a covered event.

Clearly, this type of application meets the creditor's standards for this type of credit request because the creditor is perfectly willing to move ahead in cases where the applicant is willing to pay the points associated with the lower IR. Keeping in mind that Reg. Z's limiting definition of "refinance" does not apply here, I can't find a good reason NOT to call a rate-change request an application for a refinancing. The OSC to Section 2(c)(1)(i), #1, indicates that a refusal to refinance is adverse action. Given this analysis, I'd say an AAN is needed in a case where the applicant requests an IR reduction w/o points and you counteroffer with the requested IR reduction, but with more than 0.000 points.

I may be wrong, but an unnecessary AAN won't be cited and won't trigger the Reg. B enforcement policy.
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#898761 - 02/02/08 04:59 PM Re: Is this an application? Richard Insley
rlcarey Online
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rlcarey
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Galveston, TX
Not that I totally disagree with that premise, however, would this then basically mean that any time a customer called you and asked whether or not you would modify a specific loan term, saying no would be adverse action (unless specifically excluded by the regulation)? While I agree that being safe is better than being sorry, how do you draw that line. Rate change, payment change, extension request, the list is endless.
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#898798 - 02/03/08 02:20 PM Re: Is this an application? rlcarey
Richard Insley Offline
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Richard Insley
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Toano, VA
I draw the line where an inquiry ends and an application begins. Reg. B lets me define what is and is not an application by setting my standard for the procedures I will use for the type of credit requested. In this case, it appears the creditor considers a simple phone call to be an actionable application for a rate reduction refinance. Since it's unlikely a simple phone call would conform with the creditor's procedures for any other credit request, most likely the list contains only one item - rate reduction refis - and is not endless.
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#898803 - 02/03/08 03:08 PM Re: Is this an application? Richard Insley
rlcarey Online
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rlcarey
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Galveston, TX
I guess the safest approach would be to tell the customer that the bank does consider rate reduction modification requests, however the bank needs to review the situation and request they come in and apply for the rate reduction (it doesn't have to be a full blown application, but some written documentation of the request) and run them through the normal application and denial processes. I hate to see banks start acting on telephone applications, unless they routine do this, as it leads to potential problems and does not lend itself readily to internal controls.
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#898855 - 02/04/08 03:17 AM Re: Is this an application? rlcarey
ropingbanker Offline
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Out West
I would have to agree with everyone and have to add a little more in detail than just the application step. Because you can take the request over the phone but basically at that point it becomes an applicantion request. I would suggest maybe evening doing a new cash flow projections and P & L statements with the adjusted numbers to show how it is going to help the customer with the rate decrease. This is what we have to do for an increase or decrease in rate and bring it to committee and have it approved by our loan committee and the board so it shows in the loan file the reasoning for changes and it also is more of a CYA when the auditors show up.

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#899137 - 02/04/08 05:47 PM Re: Is this an application? ropingbanker
Chocaholic Offline
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Joined: Aug 2005
Posts: 443
Northwest
thank you so much for your help... I think we will define a "rate change modification" process... and then go from there.

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#904185 - 02/13/08 06:08 PM Re: Is this an application? Chocaholic
CalifDreamin Offline
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CalifDreamin
Joined: Mar 2002
Posts: 2,262
Far from Calif
I was glad to see this discussion, and I'm still unsure how I want to suggest our staff proceed, but we are certainly seeing a rapid increase in these requests. I know for sure our loan officers are not going to have customers complete an application for this. But, I do know that in some cases, they are going to run credit - I had one come across my desk today with this very question. The LO ran credit, offered the customer different modification terms than the customer requested, and the customer didn't accept them. The LO wants to consider this withdrawn, but I am hesitant to do so, especially since we ran credit. However, I hate to set precedent that every time a customer requests a rate modification that we don't accept, we have to send a decline. I'm hoping there will be more discussion on this.
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#906132 - 02/15/08 10:36 PM Re: Is this an application? CalifDreamin
Chocaholic Offline
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Joined: Aug 2005
Posts: 443
Northwest
what we decided to do was define a process for us, as to what we needed from the customer for a "rate modification request"...These are basically a written request (not a full application), we pull a credit report just make sure other obligations are satisfactory.. then we extend offer, with a fee. For those not accepted we are sending out a decline notice... that way no holes in the process (I hope), and no room for regulator concern.

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#906137 - 02/15/08 10:45 PM Re: Is this an application? Chocaholic
MidMOAuditor Offline
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Missouri
I thought if you were just modifying the terms of an already existing note then you don't have a new application? But if you were extending new credit along with it you would? It just doesn't really make sense to me to say you have an application in this case when there is no new extension of credit.
Last edited by MidMOAuditor; 02/15/08 10:46 PM.
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