Good Morning,

Please consider the following scenario and let me know what you think. A borrower's payoffs come in higher than estimated, and the resulting loan amount increase pushes the LTV above acceptable limits for the loan. The bank had already disclosed an LE in a timely fashion. However, due to the high LTV, the bank must now deny the loan. Is the bank obligated to deny the loan within three days of receiving the payoffs? Essentially, I'm wondering if this falls under the same rules as a CIC.

Thank you for your time in advance,

R Shackleford

No. Timeframes for denials are outlined in 1002.9 as follows:

(i) 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application;

(ii) 30 days after taking adverse action on an incomplete application, unless notice is provided in accordance with paragraph (c) of this section;

(iii) 30 days after taking adverse action on an existing account; or

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

You can't counter for additional cash to close?

I'm guessing that, because the increased payoffs are being rolled into the requested loan, it's a request for refinancing, and the borrower isn't flush with extra cash.

That's most likely correct, but I'm just working on the denial end of things and trying to make sure we don't have a violation as the payoff came in more than 3 days before we decided to deny the loan. I'm well aware of the Regulation B (ECOA) timing requirements, but I posted this in the TRID forum because I'm concerned about the CIC requirements. Essentially, if the payoffs came in high and we were still able to do the loan, we'd be required to issue our revised LE within 3 days of payoff receipt. I feel like it's splitting hairs to say that because the "Changed Circumstance" happened to change our decision on the credit, we have 30 days to tell the customer when we only have 3 if we're just resetting tolerances. That's why I posted my question.

Once you have determined to deny the loan, you deny it. You don't send out another LE. That would be saying "we can't make the loan because there's not enough value in the dwelling to support a loan large enough to pay off your mountain of debt, but here's what the loan would cost if we were able to do it." No. Communicate the denial swiftly (don't make the guy sweat bullets) and forget about sending a revised LE.

Put another way, a loan estimate is a communication of what a loan is likely to cost. You don't make that communication if you're not going to make the loan.

Thanks, John. For clarification, I wouldn't ever advise a Loan Officer to send a revised LE when they were turning down the increased request. I just wanted to make sure the 3-day timing requirement didn't apply here. Sounds like that's a firm "no." We're not making the guy sweat bullets, either, and will work to maintain strong customer service there. I appreciate your look into this!

Correct. The initial LE doesn't have to be sent if the application is denied or withdrawn before the end of the third business day after receipt of the application. Although the AAN doesn't have to be given to the applicant within that three-day window, the decision should have been communicated to the applicant by then. And, if, after the initial LE HAS been provided, the application is denied, whether or not the denial was triggered by new information received after the application, a new LE is not triggered, and the AAN has to be timely within the requirements of Regulation B.