Our institution has a mortgage company subsidiary that is involved in correspondent lending. Unlike the bank itself, the mortgage company has contracted with third-parties (such as Lending Tree) for leads. I am interested in fine tuning policies/procedures surrounding applications based on the various definitions of an application within ECOA, RESPA, etc. and would very much appreciate feedback from BOL users.

When a mortgage loan originator from the mortgage company gets a lead from a third-party, he/she contacts the prospective borrower who has likely been contacted by a few other lenders in the meantime. The third-party provides some of the prospective borrower’s information, but the follow-up conversation between the originator and prospective borrower yields the rest. The originator will ask the prospective borrower for permission to obtain a credit report since the loan pricing (i.e. interest rate) is highly dependent upon the borrower’s creditworthiness. All the while, the prospective borrower has not formally decided to apply for a mortgage loan, as he/she is continuing to shop.

From a RESPA/TILA perspective, it is highly likely that all 6 pieces of information have been obtained from the prospective borrower. As a result, the mortgage company now has an application and will furnish the appropriate early disclosures within 3 business days.

From a HMDA/ECOA perspective, the mortgage company does not consider this to be an application since the prospective borrower has not yet provided any indication that he/she wishes to proceed and formally apply for a mortgage loan. The mortgage company has the prospective borrower sign a “Notice of Intent to Proceed with Loan Application” form. The application date is considered the date that the borrower signs this form. This is the date reported on the HMDA LAR and also the date that the ECOA 30 day clock starts ticking. If the prospective borrower does not sign and return this form, then this “loan inquiry” so to speak will never appear on the HMDA LAR nor will a credit decision ever be rendered. It was simply a lead that never resulted in an application.

Does anyone see any compliance issues or pitfalls with this approach? Thank you in advance for your time and feedback.

Bump!

I'll take a stab and say that I think HMDA belongs with RESPA/TILA regarding the date of application. While there is no formal definition of an application in Reg C, most of us use the RESPA definition of six items.

The mortgage company has the prospective borrower sign a “Notice of Intent to Proceed with Loan Application” form. The application date is considered the date that the borrower signs this form.


If you receive an application on 3/2/15 and the intent to proceed with the application isn't given until 3/10/15, your application date is 3/2/15 for RESPA purposes provided you have all 6 pieces of information, it would also be your HMDA application date and it would also be the date your Reg. B clock starts ticking.

most of us use the RESPA definition of six items.j

We do not rely on the 6 items for an application to be an application for HMDA. If we have the name, identified property and a loan amount then we consider that a HMDA application. It may be an incomplete application but it is an application.

TR - If I recall correctly, the Reg. C OSC essentially states that the Reg. B definition of application applies to HMDA (with the exception of prequalification requests).

Dan - Don't you think that there is an important distinction necessary for ECOA purposes that a prospective borrower actually gives the go ahead and wishes to formally apply for a loan?

ECOA defines application as an oral or written request for an extension of credit made in accordance with procedures used by a creditor for the type of credit requested. Even though we may have all of the information to satisfy the RESPA application definition, the prospective borrower has not actually "requested an extension of credit" because he/she is still theoretically shopping around. I'd like for our procedures state that if a prospective borrower comes to the mortgage company by way of a third-party lead generation service, then we will not consider an application to be made until either (whichever is sooner) the borrower verbally states that he/she wishes to apply or the borrower signs a "Notice of Intent to Proceed with Loan Application." It sounds OK in my mind, but I also don't want any undue regulatory scrutiny or criticism either.

Thank you both for your feedback.

IMHO, using Intent to Proceed as your application date and RESPA trigger is going to get you in a world of trouble come exam time. The borrower cannot give intent until AFTER they've been given the GFE/TIL.

Not a front line bank here so I understand your query.
Whether we get the app (1003) the day it was taken or a day or two later doesn't change the application date for RESPA or Reg C. It will still be the date the application was taken (or received if fax/mail/internet).

We've had to do a ton of training to get LOs to get those apps in asap so the disclosures can be given within the three day window.

eta: do you have chapter and verse for your OSC comment to me above?

I agree with Dan's comment about applications. I don't think it's accurate to say "most of us use the RESPA definition of 6 items". In fact, you can't use RESPA's definition of application for HMDA. RESPA's "bar" is higher than Reg B & C's.

Truffle: You say Reg C doesn't give a formal definition of "application." I disagree. §1003.2(b) defines an application just like Reg B does: "... an oral or written request for (3 types of loans) made in accordance with procedures used by the financial institution." The Commentary also says Reg C's definition is consistent with Reg B.

Dan - Don't you think that there is an important distinction necessary for ECOA purposes that a prospective borrower actually gives the go ahead and wishes to formally apply for a loan?


No. If I solicit a potential borrower and persuade them to give me their information for credit then I have, IMO, taken an application for credit. How can you defend the applicant hasn't applied for credit? They've given their information in anticipation of you giving them a decision whether you will or will not make them a loan if they decide to accept/proceed with the loan based on the information you've taken from them and the credit information in the consumer report.

IOWs you can't solicit the applicant for their information and once they give it to you arbitrarily say they didn't furnish you an application for credit if you don't proceed with the application for whatever reason.

The only possibility of excluding them would be if you can consider them an inquiry vs. an app for Reg. B purposes. However, if you have the property address, loan amount, person's name then I'm not sure how you could exclude them as a HMDA app or if you have the 6 pieces of information a RESPA app.

From 1003.2

Application.—(1) In general. Application means an oral or written request for a home purchase loan, a home improvement loan, or a refinancing that is made in accordance with procedures used by a financial institution for the type of credit requested.

If you have procedures to solicit and take information from potential borrowers then IMO you are taking an application in accordance with your procedures.

So I have to stand by my opinion that you are taking applications and reiterate my opinion that the intent to proceed has nothing to do with when you have received an application.

I agree with Dan on this. If someone gives us enough information to cross the line of "application", we can't say "we don't have their permission to pull their credit report. Therefore, we don't have an application."

If someone says they don't want you to pull their credit report yet, the LO needs to explain they need to not apply or withdraw their application. The bank doesn't need their permission to pull the credit report. It's what the bank does when it receives an applicant.

However, someone could explain they don't want their credit pulled and the loan officer can talk policy to them. This could keep it in the inquiry "camp".

The "applicants" can't have their cake and eat it too. They're either applying or not. IF they are, we pull their credit. Not their choice.

See this similar discussion in the RESPA Forum:
http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1998844#Post1998844