When a mortgage loan is submitted with specific loan terms, such as: 5.25% for 30 years, and the credit report comes back with a credit score that would not qualify for this rate we would counter offer with the increased rate and respective fees.

What would be listed as the specific reason for denial on the counteroffer notice? Could we indicate the credit score as the reason for denial and send them a copy of the credit report to review?

Lori

Lori, others a lot wiser will opine, but IMHo, you should never use the credit score on an adverse action. You should use the reasons why the score was low, (bankruptcy, high utilization of revolving debt, etc) but not the score.

The fair credit notice is usually the 2nd part of the "adverse action" notice. This tells the customer where the negative informatio came from and how they can get their own copy of the credit report. The one the bank gets is not simple to read, and may be outside of your contract with the credir reporting agency. The one they send is much more user friendly.

SB is right. The reg requires specific reasons be listed.

To touch on this post again with a question...

So to be sure I am understanding this correctly, if the LO is denying it based upon the credit scores being low, then on the Denial Letter, we can not check the "other" box that is blank and type in "Below Credit Score Guidelines"?

Thanks!

No, you must give "meaningful" reasons. Below Credit Score Guidelines does not help the applicant understand the reason and what they can (must) do to qualify.

The credit report should indicate the reasons for the low score (too much recent credit, too much used of credit available, slow pay, etc.)

Al

Reg. B - Sec. 202.9 Notifications

The statement of reasons for adverse action required by paragraph (a)(2)(i) of this section must be specific and indicate the principal reason(s) for the adverse action. Statements that the adverse action was based on the creditor’s internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor’s credit scoring system are insufficient.

uhhh...yep...that's pretty much written in black and white!

Think about the intent of the AAN. You are telling someone they don't qualify. Why don't they qualify? They can only correct those deficiencies if they know what they are. So you must tell them specifics. Perhaps then they can reapply after they have resided at the current address longer, lowered their debt, paid outstanding credit cards, increased a down payment, etc. If the problems can be corrected, you may have a good loan and a happy borrower.