)HMDA and Counter offers

If you have made a counter offer to a borrower and it has been accepted ( a counter offer letter with new terms has been sent
out) and the loan does not close or fund , do we report it for HMDA based on original terms as a denied loan or do we report it based on the new terms if all outstanding credit conditions have been met as approved not accepted? Or if the loan does not close and there are outstanding credit conditons, do you report it on the new terms with the reason for denial being the missing information? I think we should report all counter offers that do not close based on original terms and as a denied loan. But the SME at my company is telling me we should report based on the new terms if they accepted it and it is documented that it has been accepted.

Unless the loan actually closes, we report all counter offers as denied for the original request.

If they don't close the loan then how did they accept the new terms? They may have told you OK, but if they chose not to close then they changed their minds in accepting the new terms. I agree with hmdagal, you report as a denial based on the original terms applied for.

Thank you, I agree

I've always had problems with this. GIR does not specifically address a situation in which a borrower accepts a counteroffer, but the loan does not close - it only deals with whether an applicant "accepts" the counteroffer or not. Maybe it's a semantic issue, but to me, acceptance of a counteroffer means that an applicant acknowledges that the terms applied for cannot be granted, but that different, agreeable terms are available. Our policy is that if we have a signed counteroffer letter indicating the terms initially applied for and the counteroffered terms, and the loan does not close, we code the application as Approved but not Accepted at the counteroffered terms. If the applicant does not accept the counteroffered terms or does not respond, we code the loan as Denied at the initially requested terms.

If the loan did not close how did the applicant accept the counter-offer, whether they signed something or not? If they did not close the loan under the new terms then they did not accept the counter offer.

See page D-11:

....initially requested, the institution reports the loan amount granted....

If you did not close the loan than you did not grant any amount did you?

The applicant is accepting the terms of the counteroffer, just as the applicant of a straight approval is accepting the terms of his/her application by signing a Commitment letter.

It also would appear that you would run into a consistency issue by reporting the counteroffered terms on funded loans only. Say you have two separate applications for $100,000 from separate applicants with the same rate/program/term that are counteroffered to $90,000, and both applicants agree to accept the new loan amount - one of the loans funds, while the other doesn't because the seller backs out. Why should there be a difference in the loan amount that is reported? Wouldn't it make more sense to report both at $90,000 - one originated, and one approved but not accepted - than to report one originated at $90,000, and one denied at $100,000?

Again, I think it is a semantic issue - it certainly is not black and white the way it reads in GIR. The assumption is that everyone is operating on the same definitions of "accept" and "grant", which is not necessarily the case.

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.

The instructions for the Action Taken on a counteroffer is very plain that you you report as a 1 (an origination) or as a 3 (a denial). There is no option for code 2, approved but not accepted.

c. Use Code 2 when the application is approved but the applicant (or the loan broker or correspondent) fails to respond to your notification of approval or your commitment letter within the specified time. Do not use this code for a preapproval request.

In a counteroffer scenario the application was not approved, it was denied and countered.

Use Code 3 if the applicant turns down the counteroffer or does not respond.

I wouldn't call the guidance "very plain". In my example, the applicant is neither turning down the counteroffer nor is he/she non-responsive to it. I do not see anything prohibiting Approved but not Accepted from being used in these situations. Why should I make the assumption that the reported loan amount should be different based on circumstances beyond the applicant's control?



I disagree. Are you saying that any time a loan is counteroffered, it is not approved until it funds?

I'm saying the counteroffer was not accepted until it funds. For whatever reason, if the loan does not fund the applicant did not accept the offered terms and the original request was denied as applied for.




Show me anywhere in the Regulation, the Commentary or the GIR that under the action taken that it gives you the option to report a 2 on a counteroffer.

You either report it as a 1 if accepted, or as a 3 if not accepted. Therefore you would have to report all your "accepted" counteroffers as originations.

ComplyGuy: FWIW, I agree with Dan. To be accepted (by the applicant), a counter-offer must be closed. If they don't close the loan, they didn't accept the counter-offer. They might say they did, but if they don't follow through, it isn't truly accepted.

I still do not agree. If an applicant agrees to counteroffered terms, at that point, the application becomes approved, and it should be treated as any other approved application - up to and including either Loan Originated or Application Approved but not Accepted. If the applicant "turns down" or "does not respond" to the counteroffer as it says in GIR, then I would agree that it should be coded as Denied.

How would you know the applicant accepted the offer if the loan didn't close? Do you document an approved counter offer in your file? If so, how? And to further argue the point, why would an applicant accept a counter offer, then not close? The clear, correct response is what has been stated so eloquently by our moderators above. These guys know their compliance inside out.

The application did not become approved, your counteroffer became approved. Big difference IMO and the Reg. gives specific instructions how to report counteroffers. You either report them as a 1 or as a 3. And you still have not backed up your opinion with any citations from the Regulation, Commentary or GIR.

karenv - If a counteroffer is accepted by an applicant, the applicant signs a counteroffer letter indicating both the applied for terms and the new terms being offered, in addition to a Commitment letter with the new terms. There are several reasons why an applicant would accept a counteroffer, then not close - applicant is denied by co-op board, property falls through, etc. I have a tremendous amount of respect for Dan and David and frequently read their opinions on these boards for guidance - I'm not questioning their knowledge, but do not agree on this issue.

Dan - we treat an agreed upon counteroffer as an approval - meaning the applicant agrees to and acknowledges the new terms, and based on the information we have, we are able to grant credit and close the loan on those terms. I do not see anywhere in the Reg, Commentary or GIR that prohibits us from using Approved but not Accepted as a final action on an approved application. Regarding the 1 or 3 language in GIR, I do not believe that every non-originated c/o situation can be categorized as "turns down" (applicant does not agree to c/o terms, in which case we code as 3) or "does not respond". I cannot offer a citation, but I also have a difficult time understanding the logic, and do not understand how this isn't a fair lending issue (see my example in the 7th post above).

This is from FFIEC site on HMDA Q & A's

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.

-----Original Message-----
From: hmdahelp@frb.gov [mailto:hmdahelp@frb.gov]
Sent: Tuesday, January 16, 2007 10:29 AM
To: Dan Persfull
Subject: Re: Counteroffers (c)



I would code them as code 3 also, as the original loan request was denied.






dpersfull@
To: <hmdahelp@frb.gov>
cc:
12/26/2006 01:19 Subject: Counteroffers
PM





For the Action Taken the Regulation specially states that you report code 1 for accepted counteroffers and report code 3 if the applicant does not accept the counteroffer or fails to respond. There is not an option for code 2, approved but not accepted.

What constitutes an accepted counteroffer? Must the loan be consummated
(closed) before the counteroffer is accepted?

If an applicant commits to a counteroffer, but fails to close the loan then would this constitute acceptance of the counteroffer and the application would then be reported as a code 2. If so, what is your justification in the Regulation to support that opinion?

In my honest opinion the above would be reported as a 3 because the applicant did not ultimately accept the terms of the counteroffer and the original request was denied as applied for.

Thank you,
Dan Persfull


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Dan - thank you for the follow-up. We had another situation since this thread started in which the action type was called into question. A borrower applied for a refi, was counteroffered, the loan closed, then rescinded. According to GIR, our only options on rescinded transactions are 1 - Originated or 2 - Approved but not accepted. Since we treat all of our rescinded transactions as approved but not accepted, should we have coded this as a 3, even though GIR does not offer 3 as an option on rescinded transactions?

Gotta love how hmdahelp can boil the answer to your entire email down to one sentence, Dan. Makes you wonder if they even looked at the second paragraph.

Mind you, I'm not saying I disagree with 3. But I can see where complyguy is coming from and would have liked a little more explination. Normally we all ding the folks there as being hmda(un)helpful but here we're putting our eggs in their basket.

Kinda makes you go hhhmmmmmmm.....

If they rescinded the transaction then IMO they ultimately did not accept the counteroffer, we would report this as a 3.

If they rescinded a non counter-offered transaction we would report them as approved but not accepted.

Can't I use the same argument for rescinded loans? I tend to agree with Truffle regarding hmdahelp - maybe I should submit the same question and see if I receive a different response

I'm looking at it as though you have a rescinded counteroffer. As I said if they rescind the transaction then they did not accept the counteroffer.

Look at this way. You counteroffer me on a transaction. I say OK sounds good. I don't come in to close the loan, or I rescind the loan. You ask me why. I tell you because I've changed my mind and I don't want the loan. Therefore I didn't accept the counteroffer.

I see where you are coming from, but according to the letter of GIR, a rescinded loan cannot be coded as 3, just as a counteroffer cannot be coded as 2.

I would like to bring this thread back to life, with a "twist."

An LO made a counter-offer offer due to DTI. The LO countered for a lower loan amount. The applicant accepted.

But then the income came in and the income is too high for the program the LO approved the applicant for (RD). The LO countered again for a conventional loan.

The applicant withdrew the next day.

1) Should an LO be making 2 counter-offers with denial?

2) Would the LO use the original counter-offer with denial date for action date? (I understand per HMDA, yes...but I am thrown off with 2 Counter-Offers!)

3) Should the LO use the original reasons the loan was denied on the Adverse Action Notice?


Thank you for any feedback-

A non accepted counter-offer, regardless if 1 or 10 were made, is reported as a denial.

The date of action would be the date final action was taken.

You report the original amount requested for non originated loans.

Thank you so much Dan. I appreciate it.

I am going to piggy back on this thread. Customer applies to combine first and second mortgage held by the bank. Bank counter offers to leave the first and second in place however, will modify and lower the rate on the second. Customer accepts. Is this HMDA reportable?

modifications are never HMDA reportable.

Truffle is correct. Since the counteroffer was accepted and the new "loan" is a modification, it is not reported. IF you were to replace the 1st & 2nd with a new loan, this would be reported as a "refinance".

David's back AND I got one right!!!!
On that note I'm hangin' it up for the week.

And I see my hiatus has allowed you to surpass me in posts TR! Enjoy the weekend!

Thanks! That was my thought since it became a modification, but wanted confirmation from the experts. Have a great weekend everyone!

How did the "counter-offer" provide credit on different terms?

I don't think the end modification has anything to do with the credit request to consolidate the two loans being denied. All they did is change the terms of existing credit after determining they did not want to extend a new loan.

My initial thought is they have a reportable denial.

Dan, that is exactly why I asked. The customer applied to combine the two loans in order to lower his monthly payment. It is a TDR so the bank did not want to refinance the property, and so therefore made the "counter offer" to lower the rate on the second mortgage, which then lowers the monthly payment amount. My first thought was its a counter which becomes a modification, not reportable, but then I questioned myself because it seems like we "drop" the application by not reporting it, and I could see examiners thinking as you are.

It is a TDR so the bank did not want to refinance the property,

Unless someone can convince me otherwise I'm going to have to opine you have a reportable denial.

I disagree. If I ask for A and the bank counters with B and I accept B, then I don't believe you have a reportable denial. I think this is an accepted counter-offer.

If an institution makes a counteroffer to lend on terms different from the applicant's initial request (for example, for a shorter loan maturity 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. [Commentary to §1003.4(a)(8) #1]

If the borrower has supplied… information the lender requires for a credit decision and the lender denies the application or extends a counter-offer that the borrower does not accept, use the code for "application denied". [HMDA FAQ – Action Taken]

No where in Reg B or in HMDA's Action Code definitions does it say the end modification has to look similar to what was originally accepted. The borrower made a request to lower payments. Their solution was to combine the 2 loans into 1. The bank countered with a different solution that met the needs of the borrower and they accepted it.

The bank countered with a different solution that met the needs of the borrower and they accepted it.


I don't know David. Providing a different solution does not necessarily translate to offering credit on different terms than those applied for.

The customers applied for a loan to consolidate their debt (2 mortgages). The loan request was denied.

I can see an argument both ways and that's why I offered a dissenting opinion but I'm not going to spend a lot of time debating the issue; however I still have to opine there is a reportable denial in this circumstance.

I guess what one will have to decide is a modification of an existing credit offering credit on terms different than the loan request applied for. IMO it is not, but it is an opinion and not fact.

I think that's a stretch and one I could defend.

That's not necessarily true. No where did Christine say that in her post. What we know is the bank came up with a different solution and counter-offered it. That solution was accepted. If the loan officer said "No. Can't do that. But we could do this instead" I might agree. What if the loan officer said "We can do that, but what if we did this instead?" and the customer replied "Oh. I never thought of that. Sure. That works for me."

It's good to be back debating with you Dan!