Counteroffer & HMDA

Posted By: gunches

Counteroffer & HMDA - 07/28/16 09:46 PM

We had a mortgage application which would not go secondary market due to required improvements. Counteroffered to do loan in house, borrower accepted. Do we do a turndown and put counteroffer made and accepted and HMDA report as denied or do we just do the turndown and put counteroffer made and accepted?

Do we treat the first application for secondary market as a denial & report it on HMDA?
Posted By: TMatt87

Re: Counteroffer & HMDA - 07/28/16 10:01 PM

As long as the loan closes, an accepted counter offer would be reported as an origination. No need to report the denial based on the original terms.
Posted By: gunches

Re: Counteroffer & HMDA - 07/29/16 06:59 PM

Do we need to do a turn down on the original application as it didn't fit into the secondary program?
Posted By: dlucas

Re: Counteroffer & HMDA - 07/29/16 07:06 PM

TMatt said you would only report the terms of the origination (I agree). There aren't two applications from the client--just one.

No need to report a denial and the origination! Make it easy on yourself wink
Posted By: gunches

Re: Counteroffer & HMDA - 07/29/16 09:49 PM

I understand we will only report the loan we originate on HMDA.

Do we need to do a written notice of action taken to show we counter offered and it was accepted, or is just a verbal good?
Posted By: David Dickinson

Re: Counteroffer & HMDA - 08/02/16 07:47 PM

An accepted counter-offer is NOT adverse action. A non-accepted counter-offer is adverse action. For example, if I verbally counter and you accept, no adverse action notice is needed.
Posted By: Sharron

Re: Counteroffer & HMDA - 11/22/16 07:50 PM

I have several instances where our credit department issued a counter-offer and the borrower accepted the offer. Then for whatever reason the loan does not close. I notified the credit department that a counter-offer not accepted needed to be reported as a denied loan for HMDA purposes; they responded with the borrower DID accept the counter offer (there is no reason to deny) but for whatever reason(s) the loan did not close. Is this scenario reported as Approved not Accepted?
Posted By: Kathleen O. Blanchard

Re: Counteroffer & HMDA - 11/22/16 09:02 PM

Why would they care? No adverse action letter is needed (assuming a proper counteroffer notice); it is simply coding on the LAR.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 11/23/16 11:45 AM

Sharron: You are correct that if the borrowers didn't close on the counter-offer, it wasn't accepted. They may have "temporarily accepted" it, but not legally. Your credit department is wrong from a Reg B & C standpoint.

As KB pointed out - if you sent a counter-offer & AAN combined notice in the beginning, the Reg B side of things is done. However, if the counter-offer was verbal, no AAN was ever sent.

There's some info missing. I would explore why the loan was not closed. Was it truly withdrawn? If so, you're back to triggering an AAN since the original request was denied. How do you support "approved not accepted"?
Posted By: Rocky P

Re: Counteroffer & HMDA - 11/23/16 02:51 PM

Sharron, welcome to BOL.

Agree with KB and David. Once it gets to a counteroffer that is not taken, you have to look at the situation as it was "not approved under the conditions the applicant originally requested". To drive a point, in a completely absurd situation, application $200,000 underwriting counteroffers $50,000. Applicant says yes, but never takes it. Is it approved not accepted - no, because it's not under the conditions originally requested. In the case of "accepting" a counteroffer, accepting means the loan closed, not saying OK, I'll take it.
Posted By: JSD

Re: Counteroffer & HMDA - 02/09/17 05:07 PM

Bringing this thread back up because on another compliance site, a response from the FFIEC/HMDA Help treats it differently than what I have always been taught regarding counteroffers and final action taken to be reported. Interested in seeing what comments are made from the many gurus here!

Initial Question:

Question circulating in --- Compliance Forum generating multiple answers. Counteroffer is made and accepted by borrowers. Seller then backs out of deal causing loan not to close and borrowers to withdraw. Answers to date are "Approved Not Accepted," "Denied," and "Withdrawn." None of these are clear cut. Is one correct or more preferable over the other? Should one choose and just document their reasoning?

Just received response from FFIEC/HMDA Help. Applicable excerpt follows:

"We apologize for the delay in response. As per the information provided, please refer to the following that was based upon a conversation that we had internally as to a similar question that was posed to HMDA HELP:

If an applicant accepts the terms of a counteroffer from a bank it can be assumed at that time the bank has approved the credit application. The applicant has accepted the new terms of the application since they communicated to the bank they approve the change of terms to the application. If the applicant later refuses to go forward and have the loan originated, the action taken should be recorded as ‘approved and not accepted.' The loan would not be counted as a denial since the applicant did accept the new terms.

For counteroffers the original terms are reported when the applicant does not accept the counteroffer. In those cases the applicant never accepts the new terms so the original terms are reported and the action taken is reported as ‘denied' by the institution.

Often times loan applications are treated as continuous as they occur within the same calendar year so terms can changes as they are agreed upon by the applicant and institution. If the applicant is accepting new terms as they are offered by the bank those are then what gets reported. It is when they are counteroffered and the applicant expressly does not accept them that the original terms get reported for the loan or most recently agreed upon.

Different federal regulators may have different interpretations of how to report these instances, but typically the most recent accepted loan terms are what get reported on the LAR."
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/09/17 11:03 PM

That's new and contrary to everything we've ever heard.

I know this makes it difficult for you, but 1 reply vs. the dozens that say different doesn't make me a believer. If you choose to report this is "approved, not accepted" be sure to hang on to the email response as your proof.
Posted By: JSD

Re: Counteroffer & HMDA - 02/10/17 01:49 PM

Your response David is exactly what I expected to read! To report as ABNA is very contrary to the various different sources of guidance over the years. It has always been our understanding that if a counteroffer is accepted it is when the loan originates.
Posted By: JSD

Re: Counteroffer & HMDA - 02/10/17 02:56 PM

Curious to see what other regulators thought about this so checked with a FRB HMDA person and they are in complete agreement with HMDA Help!
They stated the loan was NOT denied.
A counter offer was accepted by the borrower even though it did not close, ABNA is the best choice since there wasn't a loan originated. It is not a denial, can't be reported as w/d since a credit decision was made, and it was not an incomplete application.

Reference was made to the Reg C Commentary: If an institution makes a counter offer to lend on terms different
...report as a denial if “the applicant does not accept the counter offer or fails to respond” ...

In this instance the applicant did accept the counteroffer so it is not reportable as a denial.

Very interesting...
Posted By: raitchjay

Re: Counteroffer & HMDA - 02/10/17 03:24 PM

If i "accept" your offer to sell your house....i buy your house. If i don't end up buying your house, how did i "accept" your offer? I think they're all wet.
Posted By: Truffle Royale

Re: Counteroffer & HMDA - 02/10/17 03:26 PM

Yikes! I don't have many but I'd sure like to know I was reporting them correctly.
Additionally, am I correct that, by extension, if this is to be marked ABNA you wouldn't send a denial letter either?

Is it just me or do we get a wild hair like this every year right before submission time?
Posted By: Dan Persfull

Re: Counteroffer & HMDA - 02/10/17 05:40 PM

MLO: Applicant, we can't approve your request as is but we can approve as that.

Applicant: Great, lets proceed.

Several days later:

Applicant: I've changed my mind I've decided I don't want the as that.


How did the applicant accept the counteroffer if they don't consummate the offer?
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/10/17 05:42 PM

Quote:
Additionally, am I correct that, by extension, if this is to be marked ABNA you wouldn't send a denial letter either?

Is it just me or do we get a wild hair like this every year right before submission time?

It's not just you Truffle!
I think you do send a denial. You are denying their original request and you're not making them a loan. Even if this is true for HMDA (which I'm still not buying yet), there are other instances, where you report ANA for HMDA and send a denial under Reg B.

To push back on this recent interpretation: The applicants do not accept the counter-offer just because they say momentarily say "yes" but later back out. I can see the "logic", but I can also then see the logic of calling this a withdrawal. The applicants withdrew. Why would we need to call it "approved, not accepted"? (don't answer that. Just trying to punch holes in the logic.)

For regulators reading this post:
If you're going to come up with a new interpretations, PLEASE send it out to all. Don't allow field examiners to be the communicator of new information.
Posted By: Truffle Royale

Re: Counteroffer & HMDA - 02/10/17 06:04 PM

Originally Posted By David Dickinson
For regulators reading this post:
If you're going to come up with a new interpretations, PLEASE send it out to all. Don't allow field examiners to be the communicator of new information.
[quote][/quote] Or HMDAHelp either. They're wrong more often than not so having to hang our hats on a communication from them is particularly scary.
Posted By: JSD

Re: Counteroffer & HMDA - 02/10/17 06:20 PM

Truffle - agree and often see them referred to as HMDA NO Help!

David - you indicated that you can see the logic of withdrawal, but a credit decision had already been made in the counteroffer - we can't do this, but we can offer this.

Counteroffers are a challenge enough to just get the systems back to the original requested terms to report accurately. Can't imagine if you were to follow HMDA Help guidance how you would track these to reported as ABNA.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/10/17 07:47 PM

Quote:
David - you indicated that you can see the logic of withdrawal, but a credit decision had already been made in the counteroffer - we can't do this, but we can offer this.

I know. That's why I said "Don't answer this". I was just trying to say "if you can do that logic, then you could do this logic too" when comparing a counter that was a "yes" and changed to a "no" by the applicant. No different than "we made a decision (approved), but they didn't accept". Could we go back and say that's a withdrawal? Again, I know that's not right. Maybe it's a bad example.
Posted By: Colorado Girl

Re: Counteroffer & HMDA - 02/13/17 06:11 PM

It directly contradicts the FAQ that states that an institution reports a 'denial' if they approve a loan subject to underwriting conditions and the applicant does not meet them. The applicants want $XX loan amount; Loan-to-Value ratios exceed limit due to low appraisal value, the lender requires a higher down payment and lower loan amount. The applicant wants to proceed (maybe they're still shopping around, maybe they are trying to come up with more to bring to the table, etc...) but in the end they don't come up with the extra down. FAQ says that's a denial. FFIEC HMDA Help and an FRB HMDA person agrees that they verbally accepted the counter to move forward on new terms or amounts so it's ABNA?

Action Taken
Conditional approvals---customary loan-commitment or loan-closing conditions. The commentary indicates that an institution reports a "denial" if an institution approves a loan subject to underwriting conditions (other than customary loan-commitment or loan-closing conditions) and the applicant does not meet them. See comment 4(a)(8)-4. What are customary loan-commitment or loan-closing conditions?
Answer: Customary loan-commitment or loan-closing conditions include clear-title requirements, acceptable property survey, acceptable title insurance binder, clear termite inspection, and, where the applicant plans to use the proceeds from the sale of one home to purchase another, a settlement statement showing adequate proceeds from the sale. See comments 2(b)-3 and 4(a)(8)-4. An applicant's failure to meet one of those conditions, or an analogous condition, causes the application to be coded "approved but not accepted." Customary loan-commitment and loan-closing conditions do not include (1) conditions that constitute a counter-offer, such as a demand for a higher down-payment; (2) underwriting conditions concerning the borrower's creditworthiness, including satisfactory debt-to-income and loan-to-value ratios; or (3) verification or confirmation, in whatever form the lender ordinarily requires, that the borrower meets underwriting conditions concerning borrower creditworthiness.
Posted By: Dan Persfull

Re: Counteroffer & HMDA - 02/13/17 07:35 PM

A conditional approval and counteroffer are not one in the same.

A conditional approval says we will approve your loan request if you provide satisfactory verification for the following information.

A counteroffer says we can't approve your request as applied for but we have approved you under these terms.

From the GIR:

b. For a counteroffer (your offer to the applicant to make the loan on different terms or in a different amount from the terms or amount applied for), use Code 1 if the applicant accepts. Use Code 3 if the applicant turns down the counteroffer or does not respond.

If you are putting conditions on the counteroffer then you have not approved them under different terms. A counteroffer should be made based full underwriting. IOWs your underwriting says we can't approve them for $200,000 but we can approve them for $175,000. You make the counteroffer for the $175,000.
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/13/17 08:08 PM

::I'm really kicking myself for opening up this thread:: crazy
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/13/17 09:41 PM

I'm not Joker. This is good to know and if examiners see it differently, we need to know and discuss.

The whole issue rests in what does "accepts" mean ("use Code 1 if the applicant accepts")? Does it mean initially, even if things change? Or does it mean the loan is closed.
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/14/17 02:13 PM

Actually, I agree! laugh! What I said was a bit 'tongue in cheek' because now I'm compelled to follow it closely! smirk
To be honest, I always thought 'accepts' means just that. Yes, I'm good with that...let's run with it. Then something changes. Maybe in the borrower's control, maybe not. It doesn't feel right to me to then revert back to 'denial'.
Posted By: JSD

Re: Counteroffer & HMDA - 02/14/17 02:41 PM

Still trying to think outside the box of what we all have been taught - if counteroffer not accepted it is a denial.

I think the biggest issue in this example is that the client accepted the counteroffer and was ready to close the deal.
It was the seller who backed out resulting in the loan not being originated not the client.

Ran this scenario by the FDIC Examiner and they agreed with the response from HMDA Help as the best answer.
Don't think this will be easy to teach lenders and clueless how a system could capture it to be reported as an ABNA.
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/14/17 02:48 PM

Well, if a counter offer is NOT accepted, it would and should be a denial.

It's the rest that makes no sense to me to revert back just because something changed down the road to make the deal fall apart.
Posted By: raitchjay

Re: Counteroffer & HMDA - 02/14/17 03:46 PM

When the seller backed out, the borrower no longer wanted the loan (by definition)...to me, that's the bottom line. So they didn't "accept" the counteroffer for a loan made by the bank.
Posted By: KTMiteComply

Re: Counteroffer & HMDA - 02/14/17 04:02 PM

We issue a counteroffer along with a Denial Notice...like for example the loan is 120,000 and we counteroffer for 115,000. The borrower states I accept the Counteroffer for 115,000, so we update the information in the system to reflect 115,000 and proceed on with the file. If the borrower comes back a couple weeks later and says hey I have found a better rate with XYZ Bank so I'm withdrawing my loan, then we Withdraw the loan b/c we have changed in the system all the amounts/terms that the counteroffer was made and notated they accepted. The updated information in our system is compliant with the policy for that particular product they have applied for, so we don't code it as "Denied".
Posted By: raitchjay

Re: Counteroffer & HMDA - 02/14/17 04:06 PM

I don't agree with that idea. You denied and counter offered. They tentatively 'accept' the counteroffer. Then they change their minds (for whatever reason, whether it's something in the counter offer or outside of it) and go to another lender. They did not (at least in my mind) "accept" your counteroffer, because they are now at a lender down the street getting a loan and not getting a loan with your bank. Maybe i've just had that hard-coded in my head too long.
Posted By: JSD

Re: Counteroffer & HMDA - 02/14/17 04:21 PM

Which action taken do your report on the LAR?
Since a credit decision had been made, it should not be withdrawn.
Posted By: KTMiteComply

Re: Counteroffer & HMDA - 02/14/17 04:26 PM

They report it as Withdrawn crazy But I've had these discussions and am in no authority making capacity...so... whistle

Glad to see this thread
Posted By: rlcarey

Re: Counteroffer & HMDA - 02/14/17 04:27 PM

The devil’s advocate in me has suddenly raised his ugly head again. I was looking at 1002.9 very carefully.

(a)(1)(iv) 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.

There is an “or” there and not an “and”. So they actually might be able to “accept” and not “use”. The only other use of this term in this section is in the commentary “Expressly withdrawn applications. When an applicant expressly withdraws a credit application”, which is nothing more than the borrower telling you verbally that they are no longer pursuing the application with you. If they can expressly withdraw – can they not expressly accept in the same manner?

I really want to find the original Federal Register on this as I am sure there was probably some discussion. The adverse action notification requirements in 12 CFR 202 did not appear in the original release of Regulation B on 10/22/75 or in the amendments of 12/17/76. In the 06/21/83 announcement from the Fed regarding their five year review of Regulation B which culminated in the significant rewrite of 1985, it indicated that 202.9 existed prior to the 1983 release.

So, the question becomes, when was 202.9 added in its current predecessor form? Anyone have any ideas? It might shed some light on the subject.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/15/17 04:46 PM

I certainly see your point Randy and understand. I agree with your comparison to "expressly withdrawn." The difference, is once someone expressly withdraws, it's done. If they came back later and wanted to re-open the application, we know that we can start a new application or modify the existing request. Those are addressed in the regulations.

In the scenario discussed, they didn't USE the credit offered. That's a given. The question is what does "expressly accept" mean? Does it mean, "yes" but later a "no" can happen, or does it mean "initially accept" and then it doesn't matter what happens later? I can go either way, but for years, the interpretation has been different. If there's a change in interpretation, we need formal notification/guidance from the regulatory agencies on this.
Posted By: Colorado Girl

Re: Counteroffer & HMDA - 02/15/17 10:53 PM

It is the below excerpt from the Help response that really bothers me. It seems to say that things can change, multiple times even, and as long as the applicants 'expressly agree' to the changes along the way, all of the requests prior to that are hidden from the reported data.

"Often times loan applications are treated as continuous as they occur within the same calendar year so terms can changes as they are agreed upon by the applicant and institution. If the applicant is accepting new terms as they are offered by the bank those are then what gets reported. It is when they are counteroffered and the applicant expressly does not accept them that the original terms get reported for the loan or most recently agreed upon."

Wouldn't this effectively hide discriminatory practices? 'We cannot do that, but we might be able to do this. Would you like to proceed?' How hard would it be to say that the applicants said Yes, even if they didn't. Currently, if a denial is masked as a 'withdrawn', the data will show that something might be off if the amount of withdrawn applications is higher than an institutions peers. But if the changes occur prior to what is reported, how would the data show that they were turned down for what they requested? It makes sense to me that the accepted terms be reported when the request is originated - because the applicants needs were met. But if their needs aren't met, how will the data show where the turn downs really are? How will the data show when an institution is serving the housing needs of their communities? How will the data assist public officials in distributing public-sector investment so as to attract private investment to areas where it is needed? If those in need (LMI) are told no but offered something else to proceed, and they say they would like to pursue whatever can be offered, but what is offered doesn't actually meet their needs - how does approved but not accepted data pinpoint where help is needed?
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/16/17 02:06 PM

You make a very good point, Colorado Girl.
Posted By: Colorado Girl

Re: Counteroffer & HMDA - 02/16/17 10:23 PM

I still see the same rules as we have now, and the same understanding that we're all talking about having forever. And they've added it to the new rules. The only action taken for a counteroffer is originated or denied. There isn't the option for approved but not accepted (unless it is the result of a rescinded transaction).

From the new rules:

Paragraph 4(a)(7).
1. Covered loan amount—counteroffer. If an applicant accepts a counteroffer for an amount different from the amount for which the applicant applied, the financial institution reports the *covered loan amount granted*. If an applicant does not accept a counteroffer or fails to respond, the institution reports the amount initially requested.

9. Action taken—counteroffers. If a financial institution makes a counteroffer to lend on terms different from the applicant’s initial request (for example, for a shorter loan maturity, with a different interest rate, or in a different amount) and the applicant does not accept the counteroffer or fails to respond, the institution reports the action taken as a denial on the original terms requested by the applicant. If the applicant accepts, the financial institution reports the *action taken as covered loan originated*.

13. Action taken—conditional approvals. If an institution issues an approval other than a commitment pursuant to a preapproval program as defined under § 1003.2(b)(2), and that approval is subject to the applicant meeting certain conditions, the institution reports the action taken as provided below dependent on whether the conditions are solely customary commitment
or closing conditions or if the conditions include any underwriting or creditworthiness conditions.

i. Action taken examples. If the approval is *conditioned on satisfying underwriting or creditworthiness conditions* and they are not met, the institution reports the action taken as a denial. If, however, the conditions involve submitting additional information about underwriting or creditworthiness that the institution needs to make the credit decision, and the institution has sent a written notice of incompleteness under Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not respond within the period of time specified in the notice, the institution reports the action taken as file closed for incompleteness. See comment 4(a)(8)(i)-6. If the conditions are solely customary commitment or closing conditions and the conditions are not met, the institution reports the action taken as approved but not accepted. If all the conditions (underwriting, creditworthiness, or customary commitment or closing conditions) are satisfied and the institution agrees to extend credit but the covered loan is not originated, the institution reports the action taken as application approved but not accepted. If the applicant expressly withdraws before satisfying all underwriting or creditworthiness conditions and before the institution denies the application or closes the file for incompleteness, the institution reports the action taken as application withdrawn. If all underwriting and creditworthiness conditions have been met, and the outstanding conditions are solely customary commitment or closing conditions and the applicant expressly withdraws before the covered loan is originated, the institution reports the action taken as application approved but not accepted.

ii. Customary commitment or closing conditions. Customary commitment or closing conditions include, for example: a clear-title requirement, an acceptable property survey, acceptable title insurance binder, clear termite inspection, a subordination agreement from another lienholder, and, where the applicant plans to use the proceeds from the sale of one home to purchase another, a settlement statement showing adequate proceeds from the sale.

***iii. Underwriting or creditworthiness conditions. Underwriting or creditworthiness conditions include, for example: **conditions that constitute a counter-offer**, such as a demand for a higher down-payment; satisfactory debt-to-income or loan-to-value ratios, a determination of need for private mortgage insurance, or a satisfactory appraisal requirement; or verification or confirmation, in whatever form the institution requires, that the applicant meets underwriting conditions concerning applicant creditworthiness, including documentation or verification of income or assets.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/16/17 11:07 PM

Look at this:

9. Action taken—counteroffers. If a financial institution makes a counteroffer to lend on terms different from the applicant's initial request (for example, for a shorter loan maturity, with a different interest rate, or in a different amount) and the applicant does not accept the counteroffer or fails to respond, the institution reports the action taken as a denial on the original terms requested by the applicant. If the applicant accepts, the financial institution reports the action taken as covered loan originated.

The last part of that clearly says the the counter offer not only has to be INITIALLY accepted, but results in a COVERED LOAN. If the applicant says "yes" but then doesn't close, it's not an accepted counter-offer. Therefore, (reading the first part of this), the applicant did not accept and we're told to report it as a denial.

Isn't this clear and contradict what HMDA Help has told some recently?
Posted By: Dan Persfull

Re: Counteroffer & HMDA - 02/17/17 04:52 PM

David, I would agree and I would also emphasize:

the financial institution reports the action taken as covered loan originated

To me that is saying the loan has to be originated to be accepted.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/17/17 05:20 PM

That's exactly what I'm trying to point out Dan. "Originated" is in the instructions. Anything else is not an accepted counter-offer, according to this.

Those of you that got the reply from HMDAHelp that seemed to contradict this - would you please reply to them with a copy and paste of what I quoted (or what Colorado Girl posted) and see what they have to say? Thanks.
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/17/17 08:41 PM

Now see I can read/interpret that completely differently from you guys. To me...there is a big black hole in that directive.

If the applicant does not accept or fails to respond - denied.
If applicant accepts - report origination

Okay...so...where is the instruction for applicant accepted the new terms, but something else happens and it did not originate.

I'm sorry, it's still just not black and white!
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/20/17 05:05 PM

Quote:
where is the instruction for applicant accepted the new terms, but something else happens and it did not originate.

If a loan wasn't originated, then you can't report it as an "originated" loan. That's our point.

You're right that the regulation doesn't address where an applicant initially accepted and then backs out, but you didn't originated and it's clear that you can't report it that way. Therefore, you fall back to denied because they didn't really accept it. They may have initially accepted the counter-offer, but they didn't follow through.

Anything else is not an accepted counter-offer, according to 4(a)(7) #9.

If we are to believe what HMDA Help said, then it contradicts the regulation.
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/21/17 09:19 PM

I get what the 'point' is. I'm saying they left a hole. When you say "but they didn't follow through" that simply does not cover all possibilities of the loan ultimately not originating. Because of that fact, arbitrarily reverting back to 'denied' doesn't seem quite kosher to me.
Posted By: RR Joker

Re: Counteroffer & HMDA - 04/24/17 03:35 PM

Sure am glad to see they covered the hole in the new clarifications. smirk
Posted By: raitchjay

Re: Counteroffer & HMDA - 04/24/17 03:42 PM

I haven't been able to read it yet....what "clarification" did they make (or not make)?
Posted By: RR Joker

Re: Counteroffer & HMDA - 04/24/17 03:46 PM

That the counteroffer accepted terms takes the PLACE of the original request. So then, you will report actin taken in relation to the terms of the counteroffer, not the original request.
Posted By: raitchjay

Re: Counteroffer & HMDA - 04/24/17 03:49 PM

Whether the loan consummates or not?
Posted By: RR Joker

Re: Counteroffer & HMDA - 04/24/17 03:52 PM

Yes.
Posted By: hmdagal

Re: Counteroffer & HMDA - 04/25/17 03:12 PM

The tricky thing is that there is no indication what they'll be looking for to confirm that the applicant(s) accepted the counter offer.
Posted By: RR Becca

Re: Counteroffer & HMDA - 04/25/17 03:13 PM

I was wondering about that part, hmdagal.
Posted By: RR Joker

Re: Counteroffer & HMDA - 04/25/17 04:06 PM

I think documentation is key there. To me, it's usually fairly obvious.
Posted By: hmdagal

Re: Counteroffer & HMDA - 04/25/17 09:10 PM

We have a checkbox in our LOS eek
Posted By: Compliance NABW

Re: Counteroffer & HMDA - 12/08/17 05:14 PM

Late to the party, but swear I commented on a similar thread. I thought the 2018 amendments or some other official guidance made it more clear that if you counteroffer and they accept but the loan does not result in an origination, they you code as "approved not accepted" depending on the circumstances of what conditions remain, but I am not finding it at the moment. That was always my take previously and agrees with the interpretation by the various Regulators mentioned earlier in the thread (I was an examiner, so maybe that is why I felt the same way, lol).

From my understanding, you have to look at the counteroffer as a "new" application to a point. Once you counteroffer and the borrower accepts, then the reporting is now based on the counteroffer loan. So, if they don't meet credit criteria for the counteroffer loan or the collateral ends up being unacceptable at some point, then you report a denial for those reasons. Similarly, if they were approved and only had customary closing conditions to meet, then I would code as "Approved not Accepted." If there were still more than customary closing conditions for the counteroffer loan and they withdraw before those are met, then you would reports as a "Withdrawal," etc.
Posted By: hmdagal

Re: Counteroffer & HMDA - 12/08/17 06:33 PM

There was clarification in the Technical Changes that came out in August. I copied the entire discussion if anyone is interested, but the part in red instructs us to report the terms of the counter offer if the applicant agrees to proceed with the new loan terms.


4(a)(8)(i)
Section 1003.4(a)(8)(i), as adopted by the 2015 HMDA Final Rule, requires financial
institutions to report the action taken on covered loans and applications, and comment 4(a)(8)(i)–
9 explains how to report the action taken when a financial institution makes a counteroffer to
lend on terms different from the applicant’s initial request and the applicant does not accept the
counteroffer or fails to respond. Comment 4(a)(8)(i)–13, as adopted by the 2015 HMDA Final
Rule, provides guidance on how to report the action taken for different scenarios in which a
conditional approval occurs. The Bureau proposed to clarify the guidance on reporting action
taken for counteroffers, including its relation to the guidance on reporting action taken on
conditional approvals.
The Bureau recognized that revised comments 4(a)(8)(i)–9 and 4(a)(8)(i)–13 may be read
as in tension regarding how to report the action taken on an application for which a counteroffer
is made, the applicant expresses interest in the new terms, and the financial institution provides a
conditional approval to which the applicant does not respond or which otherwise does not result
in an originated loan. Comment 4(a)(8)(i)–9 could be read to require the financial institution to
110 Id. at 66180.
70
report the action taken as a denial on the original loan terms applied for, while comment
4(a)(8)(i)–13 could be read to require the action taken to be reported as a denial, file closed for
incompleteness, approved but not accepted, or application withdrawn, depending on the
circumstances. In addition, the Bureau believed that limiting the reportable actions taken for
counteroffers to only covered loan originated or application denied might lead to less complete
and accurate reporting.
In addressing inquiries raising this concern, the Bureau had provided informal guidance
that a financial institution should follow comment 4(a)(8)(i)–13 when an application for which a
counteroffer is made is followed by a conditional approval that does not result in an originated
loan. In accordance with this informal guidance, and to address the need to provide a full range
of options in reporting the action taken on an application when there is a counteroffer, the
Bureau proposed to amend the language of comment 4(a)(8)(i)–9 to broaden the possible actions
taken that could be reported. The Bureau proposed to clarify that, if the applicant agrees to
proceed with consideration of the financial institution’s counteroffer, the counteroffer takes the
place of the prior application, and the financial institution reports the action taken on the
application under the terms of the counteroffer].
In addition, the Bureau proposed to illustrate
this interpretation by providing an example in comment 4(a)(8)(i)–9. The example would clarify
that, if a financial institution makes a counteroffer, the applicant agrees to proceed with
consideration of the counteroffer, and the financial institution sends a conditional approval letter
stating the terms of the counteroffer, the financial institution reports the action taken on the
application in accordance with comment 4(a)(8)(i)–13 regarding conditional approvals.
Five industry commenters expressed support for the changes to comment 4(a)(8)(i)–9,
and three industry commenters expressed opposition. One commenter who expressed support
71
for the changes stated that the guidance would ease the difficulties of reporting by allowing
financial institutions’ systems to reflect more accurately the specifics of the loan file at the time
of final action without requiring additional fields.
One commenter who expressed opposition to the changes preferred that comment
4(a)(8)(i)–9 be read to require that the action taken be reported as loan denied whenever a
counteroffer is made and the loan is not ultimately originated. This commenter also stated that
the new language was a major change and that financial institutions would have problems
implementing it before the effective date. Two commenters expressed concern that it might be
difficult for financial institutions to determine and track whether an applicant agrees to proceed
with a counteroffer. Two commenters stated that this difficulty would be greater in the case of
commercial and multifamily transactions because the negotiations are often fluid and several
counteroffers may go back and forth. One commenter suggested that a financial institution
should only have to report something more than loan denied if the loan origination system has
been updated with the applicant’s agreement to proceed. Another commenter suggested specific
guidance for reporting action taken for different scenarios after a counteroffer.
Two commenters suggested that the language added to comment 4(a)(8)(i)–9 conflicts
with the treatment of counteroffers in Regulation B, which one suggested does not treat a
counteroffer as a new application when an applicant agrees to proceed. Two commenters
objected to the idea of a counteroffer being treated as a new application, with one asking how the
original application should then be reported. One commenter who expressed support for the
changes stated that many financial institutions do not use conditional approval letters, and
requested that the example in comment 4(a)(8)(i)–9 be changed to allow other indications of a
conditional approval. Finally, one commenter requested that a deleted sentence stating that a
72
financial institution should report the action taken as loan originated when a loan is originated
after a counteroffer should be put back into the comment.
The Bureau now adopts the amendment to comment 4(a)(8)(i)–9 largely as proposed,
with some modifications to address commenters’ concerns. First, the example in comment
4(a)(8)(i)–9 no longer includes a reference to a conditional approval letter, which the Bureau did
not intend to suggest was required for a conditional approval to exist. The Bureau believes that
removing the reference to a conditional approval letter will broaden the applicability of the
example and facilitate compliance. Second, the comment is revised to clarify that a financial
institution reports the action taken based on the final disposition of the application in response to
the terms of the counteroffer. Information such as the application date and ULI will not change
as a result of the existence of a counteroffer with which the applicant is proceeding. An
additional example is also added to the commentary.
The Bureau continues to believe that it is necessary to provide a full range of options in
reporting the action taken on an application when there is a counteroffer. The Bureau agrees
with the industry commenter who stated that the guidance would ease the difficulties of reporting
by allowing financial institutions’ systems to reflect more accurately the specifics of the loan file
at the time of final action. In addition, the Bureau believes that those institutions and vendors
that were reading comments 4(a)(8)(i)–9 and –13 differently from this clarification will have
adequate time to change their systems. To the extent the clarifications in this rule require
financial institutions to make technical changes, those changes require only minor adjustments,
not significant system updates...
Posted By: Compliance NABW

Re: Counteroffer & HMDA - 12/08/17 09:45 PM

That's it! Thank you hmdagal.
Posted By: KTMiteComply

Re: Counteroffer & HMDA - 12/12/17 02:41 PM

Hey good morning,

So let me see if I'm comprehending all of this. Once we hit 2018 the Reg will then be stating that on a Counteroffered loan that if it does not Originate we no longer have to revert back to the Original terms and issue a Denial and we can either Approve not Accept if the loan has been Conditionally Approved or Withdraw? Geezzamiiighhhty...I might get bonked on the head and go missing from here as long as it's taken me to get most of them here to finally convert their thinking to reverting back to Original Terms and Denying the file. crazy whistle wink
Posted By: Compliance NABW

Re: Counteroffer & HMDA - 12/14/17 09:25 PM

KT Mite - It won't be the same for every scenario, but, yes there are situations where Withdraw and Approved not Accepted will be valid codes. Denying based on the Original Application is still the way to treat a counteroffer that the borrower does not accept or fails to respond to.
Posted By: jef68

Re: Counteroffer & HMDA - 02/01/18 07:37 PM

Could someone clear up a little HMDA / Reg B confusion in reference to the above. According to the Technical changes pertaining to the rules now effective for 2018 for HMDA purposes if we have a loan request that is counteroffered and the customer agrees to move forward, then decides not to, if all conditions are met, we would deny the counteroffer terms. (and report the counteroffered loan amount) .

If the loan isn't HMDA reportable, for Reg B purposes, do we follow the same logic, or deny the original loan amount.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/01/18 10:10 PM

Reg B: Although they said they agreed to the counteroffer, if they don't close the loan (decided not to later), you're back to a denial.

Reg C: Same thing. You're back to a denial, so you report the original loan amount requested and report it as a denial.
Posted By: jef68

Re: Counteroffer & HMDA - 02/02/18 02:09 AM

Thanks Dave. I think I asked my question wrong. Let me try it again.
Loan 1 - Applicant applies for a loan. The loan is HMDA reportable. We counteroffer and the applicant expresses an interest to move forward. The loan never closes. Based on the rules in effect for 2018 we deny the loan and report the counteroffer amount versus the original amount applied for.

Loan 2 - Applicant applies for a loan. The Loan is HMDA reportable. We counteroffer and the applicant immediately rejects. We deny the original amount.

I'm confused by your response because the technical changes say you report the counteroffer amount (if the customer expresses interest to move forward), not the original amount. Are my assumptions above correct? If so, if the loan was not HMDA reportable, would we still report the same way? Reporting the counteroffer amount is part of the HMDA changes. Reg B doesn’t specify what loan amount you are reporting.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/02/18 09:06 PM

Quote:
the technical changes say you report the counteroffer amount (if the customer expresses interest to move forward)


If an applicant accepts a counteroffer for an amount different from the amount for which the applicant applied, the financial institution reports the covered loan amount granted. [Commentary to §1003.4(a)(7) #1]

If they didn't close the loan, I don't believe they accepted it. We've discussed this here a few times. Reg B makes it clear that a counteroffer must be closed to be accepted (I don't have the citation at hand to show you). I think HMDA is the same. Just because they "expressed an interest to move forward" doesn't mean they accepted your counteroffer.

You mention the technical changes. If you have something different than the Commentary to §1003.4(a)(7) #1, please let me know. Maybe I missed something.
Posted By: Adam Witmer

Re: Counteroffer & HMDA - 02/05/18 12:43 PM

David, I think jef68 is referencing the preamble to the August 2017 final rule as it goes on an on about this (hmdagal referred to this as "technical changes" in post2156632). Based on the preamble, it appears that the CFPB wants FIs to report the "final disposition of the application in response to the terms of the counteroffer."

Here are a few excerpts from the August 2017 final rule:
"The Bureau recognized that revised comments 4(a)(8)(i)-9 and 4(a)(8)(i)-13 may be read as in tension regarding how to report the action taken on an application for which a counteroffer is made, the applicant expresses interest in the new terms, and the financial institution provides a conditional approval to which the applicant does not respond or which otherwise does not result in an originated loan. Comment 4(a)(8)(i)-9 could be read to require the financial institution to report the action taken as a denial on the original loan terms applied for, while comment 4(a)(8)(i)-13 could be read to require the action taken to be reported as a denial, file closed for incompleteness, approved but not accepted, or application withdrawn, depending on the circumstances.....

In addressing inquiries raising this concern, the Bureau had provided informal guidance that a financial institution should follow comment 4(a)(8)(i)-13 when an application for which a counteroffer is made is followed by a conditional approval that does not result in an originated loan. In accordance with this informal guidance, and to address the need to provide a full range of options in reporting the action taken on an application when there is a counteroffer, the Bureau proposed to amend the language of comment 4(a)(8)(i)-9 to broaden the possible actions taken that could be reported. The Bureau proposed to clarify that, if the applicant agrees to proceed with consideration of the financial institution's counteroffer, the counteroffer takes the place of the prior application, and the financial institution reports the action taken on the application under the terms of the counteroffer. In addition, the Bureau proposed to illustrate this interpretation by providing an example in comment 4(a)(8)(i)-9. The example would clarify that, if a financial institution makes a counteroffer, the applicant agrees to proceed with consideration of the counteroffer, and the financial institution sends a conditional approval letter stating the terms of the counteroffer, the financial institution reports the action taken on the application in accordance with comment 4(a)(8)(i)-13 regarding conditional approvals."


Continuing on...
"One commenter who expressed opposition to the changes preferred that comment 4(a)(8)(i)-9 be read to require that the action taken be reported as loan denied whenever a counteroffer is made and the loan is not ultimately originated. This commenter also stated that the new language was a major change and that financial institutions would have problems implementing it before the effective date."

"The Bureau now adopts the amendment to comment 4(a)(8)(i)-9 largely as proposed, with some modifications to address commenters' concerns. First..... Second, the comment is revised to clarify that a financial institution reports the action taken based on the final disposition of the application in response to the terms of the counteroffer. Information such as the application date and ULI will not change as a result of the existence of a counteroffer with which the applicant is proceeding. An additional example is also added to the commentary.

"The Bureau agrees with the industry commenter who stated that the guidance would ease the difficulties of reporting by allowing financial institutions' systems to reflect more accurately the specifics of the loan file at the time of final action."

"Furthermore, the Bureau has replaced the language in the proposed comment stating that the counteroffer takes the place of the prior application. This change is meant to make clear that the revisions to comment 4(a)(8)(i)-9 do not treat a counteroffer as a new covered loan that must be reported as a separate entry in the loan/application register, but rather provide that for purposes of reporting action taken, where the applicant agrees to proceed with consideration of the financial institution's counteroffer, the financial institution reports the action taken field as the disposition of the application based on the terms of counteroffer.
Posted By: jef68

Re: Counteroffer & HMDA - 02/05/18 01:55 PM

Thank you Adam. That is what I was referring to. So if the loan was HMDA reportable we would follow that guidance. If the loan was not HMDA reportable, I would think we would continue to report based on the Reg B guidance as Dave noted? Its inconsistent however. A commenter noted that in the HMDA technical changes but their response was that they didn't think it was inconsistent. It seems like it is.
Posted By: Adam Witmer

Re: Counteroffer & HMDA - 02/05/18 02:27 PM

Originally Posted By jef68
So if the loan was HMDA reportable we would follow that guidance. If the loan was not HMDA reportable, I would think we would continue to report based on the Reg B guidance as Dave noted? Its inconsistent however.

The bottom line is that Reg C and Reg B are two different rules, so doing things slightly different for each may be a bit challenging from a logistical perspective, but doesn't provide conflict for the rules as they are completely separate requirements.

So, to clarify, there are no changes for Reg B from what we have always done (for both HMDA reportable loans and loans not subject to HMDA). The adverse action requirements did not change, so this rule does not affect that. The logistical challenge you will have is that, when reporting for HMDA, you may have some inconsistencies from Reg B. This is really no different than the inconsistencies with TRID, such as loan purpose.

Originally Posted By jef68
A commenter noted that in the HMDA technical changes but their response was that they didn't think it was inconsistent. It seems like it is.

In reading this pre-able, it appears to me that the response to the commenter about the discrepancy in Reg B has to do with whether there would be a new application when a counter offer occurs. It seems the commenters were thinking that the proposed comment (that was ultimately revised for clarification) said that a counteroffer under HMDA would be treated as a new application, where it was not treated that way under Reg B.

Two commenters suggested that the language added to comment 4(a)(8)(i)–9 conflicts with the treatment of counteroffers in Regulation B, which one suggested does not treat a counteroffer as a new application when an applicant agrees to proceed. Two commenters objected to the idea of a counteroffer being treated as a new application, with one asking how the original application should then be reported.

...and the CFPB response:
"In addition, the Bureau does not believe that the new language in comment 4(a)(8)(i)-9 conflicts with the requirements of Regulation B.[111] Regulation B and Regulation C address different requirements: The revisions to comment 4(a)(8)(i)-9 clarify reporting of the action taken field while Regulation B, 12 CFR 1002.9(a), sets forth when an adverse action notice is required. Thus, comment 4(a)(8)(i)-9 does not affect a financial institution's obligation to comply with Regulation B.

Furthermore, the Bureau has replaced the language in the proposed comment stating that the counteroffer takes the place of the prior application. This change is meant to make clear that the revisions to comment 4(a)(8)(i)-9 do not treat a counteroffer as a new covered loan that must be reported as a separate entry in the loan/application register, but rather provide that for purposes of reporting action taken, where the applicant agrees to proceed with consideration of the financial institution's counteroffer, the financial institution reports the action taken field as the disposition of the application based on the terms of counteroffer."
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/05/18 03:30 PM

Like many regulations, how you report for one does not necessarily match how you will report for another. wink
Posted By: jef68

Re: Counteroffer & HMDA - 02/05/18 07:45 PM

Ok, so to make sure I am understanding this correctly (sorry for some reason I am having a block) if we have a counteroffer (non HMDA reportable) that the applicant does not accept (whether rejected immediately or after an initial acceptance) for Reg B purposes we would deny the original transaction.

If it was HMDA reportable we would deny the original transaction if it was an immediate rejection and deny the counteroffer if it was initially accepted, then rejected.
Posted By: RR Joker

Re: Counteroffer & HMDA - 02/05/18 07:56 PM

I'm not sure I'm following your last paragraph, but this is how I handle these [particularly for 2018 forward with the new clarifications, which make sense, btw].

Just suppose to begin with, the value doesn't work out.

I will send a Denial with Counteroffer to lower the requested amount.

1) Borrower accepts and we move on. This will be Originated for HMDA
2) Borrower says never mind. This will remain a denial for Reg B and HMDA
3) Borrower accepts, then later on some issue comes up and they change their mind, an we'll say after final approval. This will no longer be a B issue, and will be an ANA for HMDA.
4) Borrower accepts, then later changes mind because title can't be cleared. This will be another denial for B and ANA for HMDA.
Posted By: David Dickinson

Re: Counteroffer & HMDA - 02/05/18 09:04 PM

First, I'm reminded that the more I know, the more I realize I don't know. smile
Second, thank you for pointing out the details Adam. I had missed this and relied upon the Reg B logic to drive my understanding of Reg C. I haven't studied this in depth yet, but your quotes from the Aug 2017 certainly point out how I was incorrectly understanding this. My apologies to jef68 for misguiding you and to hmdagal for missing your earlier clarification.

Third, what Joker wrote is exactly how I'm understanding this now.

Thanks again to Adam & hmdagal for the clarification and to Joker for the illustrations.
Posted By: jef68

Re: Counteroffer & HMDA - 02/06/18 02:03 PM

Thanks everyone for your help!