A loan for $60k was given a counter-offer of $30k due to credit issues. The counter offer had a condition that the appraisal had to come in with a certain value. The appraisal came in substantially below the required value, making the LTV too high. The original AAN listed the counteroffer of $30,000 and listed the credit issues that led to that decision. Should it also have included the appraisal notification?

I am sorry - what appraisal notification are you referring too?

I worded that incorrectly.
Should the original adverse action notice have included the condition that had to be met? In effect, it was a conditional counteroffer.

1. Original loan request of $60,000
2. $60,000 loan was counter offered for $30,000 with the condition that the appraisal had to come in with a value of $300k. An adverse action notice went out stating the $30,000 counter offer was due to high debt-to-income ratio. The notice did not disclose that the appraisal had to come in with a $300k value.
3. The appraisal came in at $250,000 making the LTV too high. A second adverse action notice was sent declining the $30,000 counter offer due to high LTV

My question is whether or not the original adverse action notice in step 2 should have included the condition that the appraisal needed to be a certain value.

A counter-offer is a counter-offer. If you told them that we will not make you a loan for $60K but will make you a loan for $30K and they say OK - then I do not believe you can come back then say - oh sorry, now you have to also meet an LTV requirement if you failed to tell them that. Not much of a counter-offer if that is what happened.

Agreed, but I’m looking for something in the regard that address this so that I can educate the lenders.

Try the dictionary: an offer made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract. Example: Susan Seller offers to sell her house for $150,000, to be paid in 60 days; Bruce Buyer receives the offer and gives Seller a counter offer of $140,000, payable in 45 days. The original offer is dead, despite the shorter time for payment since the price is lower. Seller then can choose to accept at $140,000, counter again at some compromise price, reject the counter offer, or let it expire.

If the counter-offer includes additional conditions, they would have to be stated. Otherwise - when the customer's attorney shows up at the bank and they have a piece of paper in their hand that says the bank agrees to make them a loan for $30K - what does the lender plan to tell the judge during the breach of contract suit?

1002.9

(iv) 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.

If you put conditions on a "counteroffer" then you are not offering the applicant credit on terms different than what were applied for. You are simply telling the applicant we won't approve your loan request as is but if you do this or that we will reconsider your request.

A counteroffer is informing the applicant based on the information provided we cannot make the loan as requested but we can make you a loan for X based on this information.

And I agree with Randy you need to inform the applicant about all conditions that need to be met for the reconsideration.

Thank you, but I don’t think I will go the dictionary route. I’m new to the bank so I’m trying to understand their processes. Apparently there was a new commitment letter for the lower amount sent out on the same day as the AAN with the counter offer. The commitment letter states other conditions, including the appraisal coming it at an acceptable
value. I’m thinking that it isn’t addressed in Reg B, but it could be a UDAAP issue.
Thanks for your opinion.

I highly suggest that you get legal counsel involved if you are issuing conditional commitment letters.

I agree, and this will be my last comment on this. Referring to the HMDA comment 4(a)(9), it is perfectly acceptable to offer a counteroffer with conditions. The action taken is reported in accordance with comment 4(a)(8)(I)-13. The bank sent a commitment letter that included all of the normal conditions that needed to be met. That letter was sent the same day as the AAN. Unfortunately, when the appraisal came in (normal underwriting conditional ) the value was too low and the LTV went above policy. A second AAN went out declining the loan due to a high LTV. That could be confusing to the consumer, but the process is compliant. I just personally think that the process, although compliant, could create confusion for the consumer.

The bottom line is that I believe that the process followed is compliant. I also believe that rather than sending an AAN and a commitment letter on the same day, there should be a special AAN that combines the AAN and a new commitment letter, including the fact that additional conditions will need to be met. Just my thoughts so that we don’t have future UDAAP issues.

You are kind of saying it right there. Technical compliance is not an insulator to UDAAP violations. Twice you state it might be confusing for the consumer. If a banker thinks it might be confusing, a consumer is likely going to find it confusing. And if the terms/requirements/specs, etc. are confusing - that is a very easy jump to an Unfair practice, or perhaps even Deceptive. Intent to harm isn't require for a UDAAP.

We have a situation where the applicant's income did not support the loan amount requested so we did a counteroffer for a lesser loan amount due to income. The borrower then provided more income documentation, thinking it would support his initial request, however in evaluating that additional income, it actually lowered his income such that we then could not make the loan as counteroffered and declined the loan. Our counteroffer also had conditions and was not a commitment to lend. However, based on the comments above, it appears that a counteroffer letter is considered a commitment?