ECOA, HMDA and Denials

Reg. C makes it fairly clear when a loan application must be reported as a denial. If an applicant fails to meet underwriting or creditworthiness conditions specified in a conditional approval then the application is reported as a denial and we would send an AAN. If we have sent a conditional approval and one or more the customary commitment or closing conditions is not met (such as clear title), this is reported as Application Approved but not Accepted for HMDA. However, do we owe the applicant an adverse action notice if the loan doesn't close due to failing to meet a customary commitment or closing condition?

Under Reg. B you would have a denial due to the collateral. Whether you owe them an AAN would depend on the wording of the conditional (notice of incompleteness) letter that was provided to the applicant. Review 1002.9(c).

I'm a little stuck in a similar situation. We conditionally approved a construction/perm loan subject to the borrower providing a qualified builder. The builder was in fact not someone we could qualify (had never built a home). For Reg C, I believe this would fall into a customary commitment or closing condition so we'd report Approved Not Accepted. (Would appreciate confirmation of this though). For Reg B, I'm trying to figure out how best to close out the file in terms of an AAN. I'm not sure of the best reason to select. We try to not use Other, but I don't know what option I have. Any suggestions?

Requiring a qualified builder would IMO be an underwriting requirement, not a customary commitment or closing conditions.

Ah. Glad I asked. Thank you. So for Reg C, we report a denial. Any thoughts on what the AAN reason should be. "Other" seems to be the only option that fits.

If the decision is based on the builder's lack of qualifications then I would agree other would be the correct choice.

Thank you.

I'm just trying to make sure I'm following what you are saying - thanks for being patient. I found an internal memo (February) from the underwriting department to the lender stating the HELOC was conditionally approved, but the HELOC must be the first and only lien on the subject collateral. It also states the customer must currently own the home free and clear of any liens and that the approval expires March 6. The applicant kept saying he would get the lien cleared but hasn't. Now, the underwriting dept/loan officer want to report this as Approved but not Accepted for HMDA purposes. It seems that we have met the definition for reporting an Application Approved but Not Accepted because this clear title issue is a condition that is a customary commitment or closing condition. However, I don't find anything in writing (Conditional Approval/Notice of Incompleteness) to the customer relating this and a specific timeframe by which they must be completed. If there is no written notice of incompleteness with the lien issue and a required timeframe, wouldn't this be considered a Denial instead and we should send an Adverse Action Notice?

If the applicant has met ALL Underwriting and Creditworthiness Conditions, they are ANA for HMDA. You could still have a denial for Reg B, however. There are examples of this in the CFPB's Small Entity Compliance Guide where they discuss Action Taken Codes. Specifically, look at ANA (Code 2), Scenario #2. It seems to match what you're describing.