Our bank would like to process 1 consumer credit application to determine if homeowners qualify for a home improvement loan, either as unsecured OR secured by a 2nd mortgage. Whether an applicant is offered secured or unsecured credit (as well as the loan rate) would be based on the applicant's credit score, DTI and other factors which we obviously will not know until we obtain credit and calculate ratios.

My question is: May we accept and process credit applications for home improvement loans which do not specify (on the initial application) if the loan they are applying for will be for secured or unsecured credit?

Thank you for your input!

Isn't it usually up to the borrower to apply for a loan in the manner they would like it and then if they do not qualify, you make them a counter offer? What if they do not want your offer (secured versus unsecured)?

I see your point.

Another idea we had was to make everyone apply for unsecured credit and if they only qualify for secured, we would then make them a counteroffer that the loan must be secured. If they refuse, we send them a denial letter for their unsecured request but if they accept, we process the loan as secured. Any problem doing it this way?

What if I qualify for an unsecured home improvement loan, but want a secured one for the mortgage interest tax deduction??

If an applicant is approved for an unsecured home improvement loan, but prefers to have their loan secured for the mortgage interest tax deduction, we would not mind placing a lien on the property as long as there are no ownership issue or lien concerns that appear on title.

Would that be work?

Taking an abundance of caution lien is not a problem from a safety and soundness perspective, but you turn a non-TRID loan into a TRID loan, trigger flood insurance requirements, mortgage servicing issues, etc..

Turning an unsecured approval into a secured one that required following TRID rules would be fine.
However, you just made me think of something else: if we need to collect race, sex, and ethnicity data for HMDA purposes, are we okay requesting such information once we know it will be changed to a secured loan?

Thanks.

If the application converts to one that would be covered under HMDA you would be required to collect the information at the time it became subject to HMDA.