If a person applies for a type of loan product that the bank does not offer, is an adverse action notice required?

No. Refer to the definition of adverse action in Reg B, for what is NOT adverse action. Last item listed.

(2) The term does not include: (i) A change in the terms of an account expressly agreed to by an applicant.
(ii) Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;
(iii) A refusal or failure to authorize an account transaction at point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor’s accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account;
(iv) A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or
(v) A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.

But be careful you're not denying based on terms vs. product offered.

If they apply for a 40 year mortgage and you only offer 30 year mortgages then you are denying based on term, not product. If you do not make MH loans and are denying on that fact then you are denying on product.

Thank you, Kaybee. I totally missed that. I actually skipped the Reg and browsed in the commentary, thinking that is where I might find the answer.

Mr. Dan, you ARE perceptive. Manufactured housing (mobile homes) was actually the basis of my question but I didn't want to muddy the question with too many details. But now that I have the basic answer, I WOULD like to elaborate. Our Mortgage Center sells their loans on the secondary market. They COULD make mobile home loans IF a whole bunch of criteria were met, much of it having to do with state law and what constitutes real property. Anyway, they've yet to make one due to the impossibility of the property meeting with the investor's requirements. The bank itself DOES make some manufactured home in-house loans, so that further muddys the water.

So my question, as basic as I can make it, is....if a consumer applies at the Mortgage Center for a manufactured home loan, is an adverse action notice required? The mortgage center does not pull credit. They go ahead and ask a series of questions regarding the property. As soon as one of the questions is answered with a "no," the applicant is informed that the mortgage center does not offer that type of product.

Any further comments?

Am I correct in assuming that the mortgage company is a separate legal entity, probably under the same holding company as the bank?

If it is a separate legal entity, I do not see them as needing to issue an adverse action as that entity does not make mfg housing loans. But why not take that opportunity to refer the applicant to the bank?

I would disagree, Dan. Perhaps we are reading the paragraph differently. I read it to say they have not created the product because of the difficulty of meeting investor requirements. A bank could do all sorts of things, if it sets up the products! If Swiggles means that they have the product set up and just aren't using it (which would be odd), then I would agree.

I took it to mean they have the product available, they just haven't booked any because of the documentation difficulties. If they have a policy that they will not originate MH loans then they do not offer the product. And IMO it doesn't matter whether they offer the product in-house or through an investor, either way they have the product available.

I didn't notice that Swiggles and I answered each other at the same time. If the mortgage area is really just a department of the bank, then it would be adverse action because the bank does offer the product. To save that step, if "mortgage" is only doing investor loans and another area of the bank does make these loans for the bank's portfolio, just refer them to that area explaining that is the department that handles those transactions. To do otherwise would be foolish and creates extra work.

Thanks to everyone. That makes perfect sense.....not the answer I wanted, which is perhaps why I couldn't reason it out myself!

May I take this a step further? In this case, what would you report as the action taken for Regulation C if this was a HMDA reportable loan? It is understood that adverse action did not happen as per Reg B, but Reg C does not appear to address this particular situation. Thanks

If the applicant chooses not to contact another branch, one that does this type of lending, I guess the application would be considered withdrawn?

Sometimes the more you ponder - the more confusing compliance can be...Is this request really an application?
The FI sets it process as to what makes a complete applicaton. So could it be that there was not a complete application and therefore is not a reportable loan for Reg C?

From Reg. C:

(b) 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.

And an exert from Reg. B's definition:

(f) Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested.


IMO, if they don't offer the type of credit requested then they do not have an application either for Reg. B or Reg. C purposes.


From Reg. C:

(b) 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.

And an exert from Reg. B's definition:

(f) Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested.


IMO, if they don't offer the type of credit requested then they do not have an application either for Reg. B or Reg. C purposes.

Quote:

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The FI sets it process as to what makes a complete application. So could it be that there was not a complete application and therefore is not a reportable loan for Reg C?

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Whether you have a complete application or not for the type credit credit requested would not negate any notification of reporting requirements under Reg. B or Reg. C. If you have an incomplete application for a type credit you offer then you have an application that requires action, either a notice of incompleteness or denying it for being incomplete and reporting it either as a closed for incompleteness or a denial.

Hey guys...please make sure I am interpreting this correctly what Kaybee said below from the REG. If a Borrower applies for a loan and wants to do a Escrow holdback and per our Policy, we do look at escrow holdbacks for some items, but not for roof replacements, then this would constitute as a Denial...correct? I was originally thinking yes until I researched and saw Kaybee's response above on a previously answered question and wanted to make sure I wasn't misunderstanding something:

No. Refer to the definition of adverse action in Reg B, for what is NOT adverse action. Last item listed.

(2) The term does not include: (i) A change in the terms of an account expressly agreed to by an applicant.
(ii) Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account;
(iii) A refusal or failure to authorize an account transaction at point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor�s accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account;
(iv) A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or
(v) A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.

If a Borrower applies for a loan and wants to do a Escrow holdback and per our Policy, we do look at escrow holdbacks for some items, but not for roof replacements, then this would constitute as a Denial...correct?

Correct.

I am assuming you are referring to the following in your post:

(v) A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested.

There is a difference between type of credit offered and terms of credit offered. We offer residential mortgage loans with maturities up to 30 years. If you want a 35 years mortgage we won't grant credit to you on those terms. We offer the type credit you are requesting, a residential mortgage, but we don't offer the repayment terms you are requesting.