When does pre-qual = application?
Posted By: Beth Fay
When does pre-qual = application? - 03/16/10 02:41 AM
We are just completing an initial review of our mortgage application procedures incorporating all of the recent changes wrt RESPA, MDIA, HPML, etc. and are grappling with how to handle "pre-qualification" situations.
Under our current procedure, we do NOT provide a GFE/TIL when there is no property address identified (i.e. a "TBD" address) as this clearly is not an "application" under RESPA's definition.
BUT ... what about the pre-qual situation (which is quite common) where the borrower is considering or may have even made an (as yet unaccepted) offer on a specific property? In such a case there is no final agreed-upon contract, but the borrower has a property in mind and may have a target price he is willing to pay.
I have written our procedure (thus far) to require that we need an actual final (seller-agreed) sales contract in order to say that the property has been "identified" as well as to determine the "estimated property value" (sales price) and loan amount before we will issue a GFE. Our auditors are leaning towards the property being "identified" in such a case even if there is no seller agreement - thus triggering the GFE requirement. Obviously issuing a GFE in such a case is problematic as there is not yet a final purchase agreement and, even if the borrower does obtain a seller agreement on that particular property, many of the figures will almost certainly change. The "solution" to that (at least in the auditor's argument) is that any such changes become a "changed circumstance" if the property address / sales price / loan amount change vs. the GFE issued on the "identified property".
I would apprecite the thoughts of the BOL community on this issue. Thanks in advance.
Posted By: Dani York, CRCM
Re: When does pre-qual = application? - 03/16/10 01:02 PM
It's my understanding and has also been discussed at length in the threads that requiring a sales contract to issue a GFE violates new RESPA. This is because the sales contract is viewed as a verification document and the bank is prohibited from requiring a verification document from the applicant before issuing the GFE.
I would side with your auditors on this one. If your applicant identifies theproperty on the application regardless of the status of a sales contract, and your have the other 5 pieces of information required by new RESPA, I would issue the GFE and then look for a changed circumstance once you get the contract.
I can apply for a loan to buy a house at 123 Main St before I even make an offer because I want to know 1--that I can get the loan, 2--if I have an approval/commitment, I can close faster, and 3--know how much I can offer on the house. I don't need a sales contract to do any of those things.
Posted By: MN Banker
Re: When does pre-qual = application? - 03/16/10 01:24 PM
I agree with Dani York and your auditors, and those are the procedures I have set up here. Like Dani said, RESPA prohibits you from requiring a PA prior to issuing a GFE.
Posted By: Beth Fay
Re: When does pre-qual = application? - 03/17/10 11:15 AM
Interestingly enough, Boggs Patton has just published a summary of a meeting between HUD and representatives of some of the largest lenders and one of the topics was this very issue.
HUD's guidance (albeit in an industry post, not an "official" communication from HUD) states:
"With regard to pre-approvals, HUD advised that a pre-approval without the issuance of a GFE may be used in a purchase transaction only if the consumer has not executed a purchase contract on a property. [my emphasis]"
Of course this does not address the situation where the buyer may have "executed" a contract (i.e. made an offer), but where the seller has not responded or accepted - still not clear.
Doesn't this very comment from HUD indicate that they recognize the presence of an actual contract - regardless of wheter the property has been "identified" - as a central part of "idenifying" a property?
Perhaps HUD will at some point actully issue official guidance on this. I really do not agree that a purchase contract is a "verification document" - it is a necessary item in order to determine not only the property address, but also the sales price (property value) and loan amount.
Posted By: Dani York, CRCM
Re: When does pre-qual = application? - 03/17/10 01:33 PM
I really do not agree that a purchase contract is a "verification document" - it is a necessary item in order to determine not only the property address, but also the sales price (property value) and loan amount.
I guess my issue with this stance is this...
I come in and fill out a 1003, list the address of a house I want to buy, give you an amount that I want to borrower, and all the other information requested on the application document.
I have identified a property that I want to purchase. How is the contract not a verification document in this instance? You will ask for my tax returns to
verify my income, you will pull credit to
verify my ability to repay, you will request
verification of my employment, etc, etc.
If I have given you an amount and a property address in writing on a FNMA 1003 application, why do you need a sales contract to issue me a GFE? You will only be using the sales contract to VERIFY everything I have already put on the application.Again I ask, how is the sales contract not a verification document?
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 01:44 PM
I don't disagree that the contract itself is a verification document. I just don't think you have to issue the GFE until the contract is executed. Basically you could say that we require one additional piece of information in addition to the six required by respa and that piece of information is that you have a contract on the property. That doesn't mean that you are going to require the borrower to send you a copy of the contract to verify what they are telling you. It only means that you require the contract to be completed. Maybe that doesn't really help anyone, but I think there is a distinction to be made there. I guess the only thing it may help with is keeping the lender from having to issue a separate gfe on fifteen different properties before the borrower settles on one.
Posted By: Dani York, CRCM
Re: When does pre-qual = application? - 03/17/10 01:56 PM
I understand what you are saying, and not that I don't agree with you in spirit; however, IMHO I don't think that requiring the applicant to have an executed contract to issue a GFE follows the spirit of what RESPA is trying to accomplish in making the GFE a shopping tool.
If I want to shop around for houses, that is my perogative. As an applicant, if I come to you and ask for a GFE on 15 different properties, you are required by regulation to issue me a GFE on each one if I have provided you all six pieces of information on my application. While regulation includes the language "and any thing else the lender deems necessary...", I believe that banks will be hard pressed to argue the neccessity of requiring anything more than the 6 items specifically stated by RESPA in order to issue me a GFE, especially items that could be viewed as verification documents, due to the regulatory climate we are in right now.
Of course, this is just my opinion, and it will really depend on your regulators and what they are looking for......
Posted By: M Cockrell
Re: When does pre-qual = application? - 03/17/10 02:12 PM
I agree with Dani.
If an applicant is required to have a contract in place before being provided with a GFE, the likelihood of them shopping is significantly decreased.
IMO, it flies in the face of the "spirit of the law."
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 02:50 PM
I totally disagree. The spirit of RESPA, despite HUD's attempts to expand it into something much greater, is to allow consumers to shop for a loan. It is not to allow them to shop for a home. . I can see where the consumer would want to know the costs associated with each particular property, but why should the lender be responsible for providing this on multiple properties (all subject to tolarances) when they can't even charge for any of it? There is real work in creating these estimates and I want to comply, but I don't want to expand the reach of the regulations unnecessarily either.
Posted By: M Cockrell
Re: When does pre-qual = application? - 03/17/10 02:58 PM
We'll have to choose to disagree. RESPA is applicable to 1-4 family (residential) real estate, so what kind of loans are being shopped for: "home" loans.
It is a consumer protection law; therefore, it is irrelevant what costs the potential lenders are forced to incur. It's a cost of doing business in this consumer-friendly environment.
Posted By: Dani York, CRCM
Re: When does pre-qual = application? - 03/17/10 03:01 PM
I didn't mean to imply that RESPA was to shop for a home. It is to shop for a loan; however, in some cases, applicant's do both at the same time.
My point is that requiring me, as a consumer applicant, to have an executed contract prior to issuing me a GFE even though I already told you a loan amount and gave you a property address for a home I am interested in buying does not allow me to necessarily accomplish my goals as a consumer.
I am totally with you on all the extra work that would be required in such a scenario. I am, however, trying to point out the potential risk an institution faces when deciding on what constitutes an application. Your bank can choose to handle however it wants. My institution has decided that once we have the 6 specifically identified pieces of information, we issue a GFE. We have chosen not to assume any risk by adding to the definition of an application. We have decided that if the applicant later changes properties or loan amounts, to consider them changed circumstances. This works for us since our loan products and pricing are not very complex.
Your institution needs to determine, based on your regulators, product and pricing complexity, etc what risks it is willing to take by adding to the 6 pieces of information.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 03:14 PM
I think your assesment is totally on in this last strand Dani. I agree that there is some risk in making the decision to consider an executed contract an additional piece of information. I think we have all seen how HUD can take its regs and expand upon them through FAQs. I guess I just feel that sometimes posters are so conviced that their company policy is the only correct way that they interpret it as law. I'm sure your policy decision makes the most sense for your business. I'm just not sure it makes the most sense for mine. I know everyone is erring on the side of caution at this point, but I like to contine to explore what the law truly allows. Thanks for debating with me.
Posted By: Dani York, CRCM
Re: When does pre-qual = application? - 03/17/10 03:30 PM
No problem. Love a good debate...sometimes I think I should have been a lawyer....definitely would get paid alot better to spout off my opinions.
Posted By: CompDat
Re: When does pre-qual = application? - 03/17/10 03:32 PM
Brock you stated in one of the previous posts that you do not believe you have to issue a GFE until the contract is executed. IMO I disagree. The application process never requires an executed contract. RESPA disclosures are shopping disclosures. See Reg. B's due diligence requirement. Reg. B governs the application process. To summarize the due diligence requirement, it essentially says if you require something to be part of an application, then YOU (the loan officer) need to collect it. That means that if you require a property address, you need to request it. Since you cannot execute the contract, just ask. If your applicant says that XXXX is my property address, you have satisified that portion of the application process.
Posted By: Truffle Royale
Re: When does pre-qual = application? - 03/17/10 03:42 PM
I would suggest that you search purchase contract and David Dickinson's name. Somewhere in this forum I'm sure David quoted chapter and verse from the Reg that stated the purchase contract is most definitely a verification document and cannot be a condition of issuing a GFE. I'm certain I heard that in one of the training sessions I attended also...it may have even been the HUD webinar.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 03:45 PM
CompDat, I think you are technically accurate without requiring more inforamtion as a part of the application process. I am saying that RESPA specifically allows the lender to require other pieces of information (I don't see how Reg B applies) in constituting a completed application, and I see no reason why you can't ask if they have an accepted offer on a home as one an additional piece of information. I do agree that the regs do not allow you to require that the contract be sent to you prior to sending the GFE, but that can certainly be a question. If they say no we haven't put in any offers yet or something like that then you say ok your application is incomplete until you have an accepted offer. As soon as you have that we will update the rest of the information based on your knowledge of the contract (not our review) and then we will send you a GFE.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 04:04 PM
Somewhere in this forum I'm sure David quoted chapter and verse from the Reg that stated the purchase contract is most definitely a verification document and cannot be a condition of issuing a GFE.
I am not arguing that requiring a contract to be sent to you is not a verification document. I am arguing that asking if the contract has been executed is allowed. It is difficult to separate the two in the manner in which most lenders operate, but if you can do it, there is a possiblity to ask the question.
Posted By: CompDat
Re: When does pre-qual = application? - 03/17/10 04:05 PM
RESPA specifically allows the lender to require other pieces of information
It does permit financial institutions from requiring other pieces of information, but those pieces of information cannot be more burdensome than the regulation. For example your institution may require (example) an estimation of credit score, but they cannot require the credit score before issuing the GFE. So to suffice they could say... do you know if you have good credit, bad credit etc. That will not permit them to pull credit prior to issuing a GFE. (I know bad example since a credit pull is the only verification that can be performed.
I don't see how Reg B applies
Reg. B governs the application process. Your references to RESPA's definition of application are the definition of application to provide a GFE. Thus, both regulations work hand in hand. It is very hard to understand RESPA's definition without Reg. B's definition. The diligence requirement ties it all together. It basically says, you lender, need to request. The verification phase, comes third. Thus the providing of the information by the applicant (not the verification of) is sufficient to document an application.
and I see no reason why you can't ask if they have an accepted offer on a home as one an additional piece of information
You can certainly ask it, but you cannot require it.
If they say no we haven't put in any offers yet or something like that then you say ok your application is incomplete until you have an accepted offer
This seems burdensome and probably excessive. The borrower has provided all the information to complete the application except for something you can verify. Remember, in Reg. B YOU (Lender) does the verification. Not the applicant. IMO a better idea would be to call it a completed application, and ask for the contract to help you verify some information. But if it is not provided, I do think you still have a completed application. I also think that (with maybe a few minor fee exceptions) there is nothing on a purchase contract that really changes your GFE.
As soon as you have that we will update the rest of the information based on your knowledge of the contract
I expect that your regulator will claim you are not permitting shopping.
Posted By: M Cockrell
Re: When does pre-qual = application? - 03/17/10 04:07 PM
Based on
3500.7(a)(5), you cannot require "as a condition for providing a GFE, that an applicant submit supplemental documentation to verify the information provided on the application."
I think you're traveling down the proverbial "slippery slope," my friend, when you're requiring "supplemental documentation," even if it is
only verbal documentation.
Posted By: CompDat
Re: When does pre-qual = application? - 03/17/10 04:17 PM
Actually I thought of a better idea. Perhaps there is something I do not understand about your lending area. Lets start with one question. Why do you need a purchase agreement to issue a GFE?
In the case of my state, if someone were to tell me that they needed a purchase agreement to issue a GFE, and I asked why I would expect 1 of 2 answers.
1) Because we don't want to give out GFEs (clearly a violation).
or
2) Certain information on the Purchase Contract tells who pays what fees. My response would be, you need to put them on the GFE regardless of who pays for them.
To conclude my state excercise, I would contend that there is nothing on the Purchase Contract that will impact my GFE.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 04:22 PM
Is there such a thing as "verbal" documentation? "Supplumental Documentation" ,as stated in the regs, clearly is referring to something in a tangible format that can either be viewed on a screen or on paper. It cannot be referring to questions or you could not ask for anything besides the six peices of information. Based on the interpretation of RESPA that last two posters provide there is certainly other information in the 1003 that would be a respa violation, and that just can't be. If HUD wanted to say you can't request other information in the regulation they should have said so. Instaed, the reg specifically says you can request other information. As I said, I am not arguing that requiring the physical contract to be reviewed by the lender should be allowed. I am simply saying that you can ask if the contract has been executed.
Posted By: CompDat
Re: When does pre-qual = application? - 03/17/10 04:28 PM
Based on the interpretation of RESPA that last two posters provide there is certainly other information in the 1003 that would be a respa violation, and that just can't be. If HUD wanted to say you can't request other information in the regulation they should have said so.
That is just not true. By an applicant completing or supplying information on the 1003 there is no verification. You make them put their DOB on the 1003 but you do not say we need a birth certificate. You ask if they are married but you do not make them prove this with a marriage certificate. The application is the request....
Brock, I think you are on the right path. I think you seem to be grasping a lot about RESPA, and the AHAAA moment will come soon. Dan Persful and I got into an enlightening discussion about Reg. B about 5 months ago. If you look that up it might help tie the two together. Dan and I certainly disagreed about some things in the thread but it really helps to understand the application process, IE what is an application. I have said all I can in this thread, good luck.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 04:41 PM
I agree that by supplying information on the 1003 there is no verification. I am saying that if you think asking whether or not the borrower has a contract is a verification that certainly asking other questions on the 1003 are verifications. I am trying to point out that your argument doesn't make sense with legitimate inconsistencies and you are not responding to my point. I agree that this is complicated. Lets not pretend that anyone knows the answers beause no one does. I think many of these types of questions will not be answered for years to come until some of these things are challenged in court. I have said many times that the more conservative, and possibly better approach, would be to give the GFE as soon as the borrower gives you any address, but that doesn't mean that is the only thing allowed by the regs.
Posted By: M Cockrell
Re: When does pre-qual = application? - 03/17/10 05:05 PM
Is there such a thing as "verbal" documentation?
IMO, yes. While you may not be requiring a
written copy of the contract, you are still requiring the applicant to attest, authenticate, certify, confirm, corroborate, demonstrate,
document, substantiate, support, validate,
verify they have a binding contract in place
before you'll issue a GFE.
"Supplumental Documentation" ,as stated in the regs, clearly is referring to something in a tangible format that can either be viewed on a screen or on paper.
This is not a position I'd want to defend to an examiner, as I do NOT believe it is "clearly" defined as referring to written/electronic documentation only.
Bottom line: The posters here are offering their opinions in an attempt to help. You're free to take the advice or not. Best of luck in whichever way you proceed.
Posted By: Dan Persfull
Re: When does pre-qual = application? - 03/17/10 05:13 PM
The definition of an application does not define what you need in order to issue a GFE. It defines what you need in order to make a credit decision. 3400.7 then states once you have an application with the information needed to make a credit decision then you must issue the GFE, however the FAQs go on to clarify that you cannot request verification documents to verify any information furnished on the application as a condition of issuing the GFE.
You don't need a purchase agreement to make a credit decision. The purchase agreement verifies the information furnished on the application concerning the terms of the purchase.
(b) Other terms. As used in this part:
Application means the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the borrower's name, the borrower's monthly income, the borrower's social security number to obtain a credit report, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator. An application may either be in writing or electronically submitted, including a written record of an oral application.
If your FI refused to provide me a GFE simply because I have not placed an offer on the identified property then once I leave your FI I am going to make the following phone calls.
1. My attorney
2. HUD
3. Your primary Federal regulator
4. Your state regulator
Posted By: TB 12
Re: When does pre-qual = application? - 03/17/10 05:41 PM
There are 6 triggers for a GFE to be issued:
-name
-social
-property addresss
-monthly income-
-house value or best estimate
-amount of loan
A lender can require other items, but can not hold up issuing a GFE by requesting verification docs. For example, while providing the above to the LO, I say I make 4,000 per month. The LO can not require I submit a paystub to verify that in order for me to get a GFE. If any of the above info is found to be different during the verification process later, it would constitute a change of circumstance and a new GFE could be issued accordingly.
I am curious to know the concern about issuing a GFE without a "signed contract"
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 05:52 PM
My concern is that we then end up potentially issuing up to five or six GFEs on every single file and each is subject to tolerance and human error. The fewer GFEs we provide the less risk of screwing something up the way I see it. And if you think people can't screw up, you haven't been addressing issues regarding the GFE for the past three months.
In response to Dan's comment regarding the definition of application, my counter argument is that we are not prepared to make a credit decision until there is a contract. I argue that we cannot know any of the information needed to make the decision until the contract is executed. Until the contract is executed everything is hypothetical. We may tell someone that we think their best chance to be approved for the loan is if the loan amount is below x amount or if they can bring in x amount as a down payment, but we cannot make an actual decision until they have a executed contract and a purchase price.
Posted By: CompDat
Re: When does pre-qual = application? - 03/17/10 06:04 PM
In response to Dan's comment regarding the definition of application, my counter argument is that we are not prepared to make a credit decision until there is a contract.
To counter that, you could make the decision without the purchase contract. But you would want to have that to close the loan. I do think you make a good point though that many people overlook. The term credit decision that is used in Reg. B is not referring to a firm offer of approval, it means a "preliminary" credit decision. IE, in your own mind could you offer a decision.
Here is Reg. B's definition of completed application: A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and
considers in evaluating applications for the amount and type of credit requested
As you can see from the definition, it does not say makes firm approval.
Posted By: TB 12
Re: When does pre-qual = application? - 03/17/10 06:11 PM
My concern is that we then end up potentially issuing up to five or six GFEs on every single file and each is subject to tolerance and human error. The fewer GFEs we provide the less risk of screwing something up the way I see it. And if you think people can't screw up, you haven't been addressing issues regarding the GFE for the past three months.
In response to Dan's comment regarding the definition of application, my counter argument is that we are not prepared to make a credit decision until there is a contract. I argue that we cannot know any of the information needed to make the decision until the contract is executed. Until the contract is executed everything is hypothetical. We may tell someone that we think their best chance to be approved for the loan is if the loan amount is below x amount or if they can bring in x amount as a down payment, but we cannot make an actual decision until they have a executed contract and a purchase price.
Unfortunately, there are a million potential changes that will require revised GFE's. Trust me, I have been living and breathing these RESPA changes for months and am fully aware of the potential violations and headaches from having to redisclose mulitple time.
The credit decision is different than the triggers for a GFE. If I tell you the price is 200k but later you determine the price is 400k and I don't qualify, then I get denied. That still doesn't preclude me from getting a GFE from you and if I have provided you innaccurate information, you can send me a new GFE.
Posted By: M Cockrell
Re: When does pre-qual = application? - 03/17/10 06:38 PM
My concern is that we then end up potentially issuing up to five or six GFEs on every single file...
Your concern is noted, however, it's irrelevant. RESPA does not provide lenders with the luxury of providing a GFE based on a "limit one per person" mentality.
§ 3500.7(a)(1) says, "Except as otherwise provided in paragraphs (a), (b), or (h) of this section,
not later than 3 business days after a lender receives an application, or information sufficient to complete an application, the lender must provide the applicant with a GFE.
It's submitting an app in "anticipation of a credit decision," not the actual credit decision being made. You don't necessarily have to make a credit decision in order to issue a GFE. So, unless I'm missing something else (which is ALWAYS possible), it does NOT matter how many times a potential borrower applies. You MUST issue a GFE (not withstanding exceptions) for each & every app you receive.
Posted By: Truffle Royale
Re: When does pre-qual = application? - 03/17/10 06:50 PM
Unless I'm missing something, how/why would you end up issuing five or six GFEs on A file? You issue the GFE. If you have a changed circumstance, you issue a revised GFE. You don't go back to square one. All the original tolerances are still in place except for those the changed circumstance effects.
When you have an application that addresses all six of the RESPA points, you have an identified property with at least the listed sale price known. If the final contract comes in higher or lower or the loan amount changes, you're back to the changed circumstance.
Brock, I don't think this is a debateable topic. RESPA says the purchase contract is a verification document and you simply cannot require knowledge of a final contract prior to issuing a GFE.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 06:55 PM
The thing is that we don't have an application until there is sufficient information to provide a credit decision. I am saying that a lender may say they don't have sufficient information to make a credit decision and therefore do not have a completed application until the borrower says they have an executed contract. I totally agree with everything that everyone is saying about having to issue a GFE within three days of application. What I am saying is that just because the individual has answered all the questions on the 1003 does not necessarily mean we have a completed application for purposes of RESPA.
The distinction here is small, but very important. RESPA says that we have a completed application once we have all six pieces information or any other information the institution deems necessary. I am saying that if the institution deems a contract necessary to make a credit decision, then we require seven pieces of information to have a completed application.
Posted By: Truffle Royale
Re: When does pre-qual = application? - 03/17/10 07:01 PM
Same lender is going to tell you they can't make a credit decision without the appraisal verifying the house is worth what the contract verifies the borrower said he will be pay for it.
And on that I'll bow out now happy that I'm not going to try to debate this issue with my Fed examiners 'cause I'm 100% sure I'd loose.
Posted By: CompDat
Re: When does pre-qual = application? - 03/17/10 07:04 PM
The thing is that we don't have an application until there is sufficient information to provide a credit decision.
Give me a credit score, income and a requested amount and I can make a preliminary credit decision on anything.
Let me ask you this. If someone comes in and says, I am bankrupt, no job, and never pay my bills, can I have $500,000?
Do you really need a purchase agreement for you to make your credit decision?
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 07:04 PM
I totally understand your position Truffle. Have your examiners given you an answer on this specific issue?
Posted By: Dani York, CRCM
Re: When does pre-qual = application? - 03/17/10 07:09 PM
The distinction here is small, but very important. RESPA says that we have a completed application once we have all six pieces information or any other information the institution deems necessary. I am saying that if the institution deems a contract necessary to make a credit decision, then we require seven pieces of information to have a completed application.
At this point, I think your best bet to get a ruling on this would be to call your regulator and ask them if requiring the borrower to have an executed sales contract (not providing to the lender) would be okay to include in your list of things needed to be considered an application. Or better yet, submit the question to HUD directly, since it's their regulation.
Brock, I think you will find that most posters here share the same opinion that the sales contract is a verification document and not necessary to make a credit decision. As I said earlier, it is a risk decision for your institution as to what you want to add to the 6 pieces of information to constitute a RESPA application. If your institution chooses to add to the list of 6, I would document the reasoning in detail as to why it was determined to be absolutely necessary to make a credit decision and pray that the regulators come to your side of the reasoning. I, for one, believe that in this environment, any bank would be hard pressed to add to the list of 6 and come out of an exam unscathed.
Posted By: RR Joker
Re: When does pre-qual = application? - 03/17/10 07:11 PM
Do you require a contract on a refinance? Please tell me...what IS the difference, really?
There's no guarantee on how much they owe or how much it's worth at the point of "application" now, is there?
(playing Devil's advocate here)
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 07:14 PM
Compdat I agree that there is a contradition between the requirements of reg B and RESPA. You are addressing factors that totally exlude the person from certain loan progams. I consider the RESPA credit decision section to be more narrowly focused on someone that at first glance is not excluded from the particular program. We do send a denial letter to those people, but we would not include them in our list of denied persons for our HMDA report.
Posted By: Truffle Royale
Re: When does pre-qual = application? - 03/17/10 07:23 PM
Whoa...back up the train. If you have an application and you issue a denial it's HMDA reportable. Period. Don't know how you come up with exclusion from a program being non-HMDA reportable.
Sorry. Not commenting on the purchase contract thing anymore like I promised but HMDA is a different issue.
Posted By: M Cockrell
Re: When does pre-qual = application? - 03/17/10 07:26 PM
The thing is that we don't have an application until there is sufficient information to provide a credit decision.
From my reading of RESPA's definition of an application (i.e. "the submission of a borrower's financial information in anticipation of a credit decision..."), it's the applicant who's anticipating a credit decision; it's not the lender necessarily being able to make a decision (that's where Reg B comes in).
In other words, lenders aren't expected to make a credit decision within the 3-business day time-frame. However, they are expected, nay required (always wanted to use the word "nay" in a posting), to provide the applicant with an "estimate" of costs, so the applicant, in turn, can decide whether to proceed or not.
RESPA
requires an "estimate" of cost be offered whether or not the lender can make a credit decision; Reg B
allows the lender to obtain enough information before having to actually make that decision.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 08:11 PM
Here is the answer I received from HUD regarding this issue. I don't necessarily think that this proves my position, but I do think that it supports it if only indirectly. I specifically asked if we could ask whether the person has entered into a contract and Mr. Friend did not say no. I know this is not definative, but I think it demonstrates that this is a potentially acceptable practice. Clearly if I asked the question to HUD again I might get a different response.
Brock,
You can request more information than the six pieces expressly listed in the definition of ‘application’ under RESPA; you cannot require that verification documentation of the information be provided before the GFE is issued to the borrower.
David L. Friend, Esq.
Office of RESPA and Interstate Land Sales
Department of Housing and Urban Development
From: Brock
Sent: Wednesday, March 17, 2010 3:45 PM
To: HSG-RESPA
Subject: Application?
I have a question regarding the RESPA definition of application. I know that the regulations state that there are six pieces of information that constitute a completed application. We would like ask for one additional piece of information as contemplated by the regs. We would like to ask the borrower whether or not they have executed a contract on purchase transactions prior to considering the application complete and submitting the GFE to the borrower. I know that the regs state that we cannot ask for verification documentation and so we would not require that the borrower produce the physical contract. We just want to know that a contract has been entered into. Would this practice be permissible in HUD’s view?
Posted By: CompDat
Re: When does pre-qual = application? - 03/17/10 08:18 PM
Brock, to note that you said you would require one to issue a GFE. David Friend did not say you could require one, he said you could ask the question. I think this supports our assertion more than you think. I am not going to speak for Mr. Friend, but nothing he says contridicts anything I believed previous to this thread or stated in this thread.
Posted By: Dan Persfull
Re: When does pre-qual = application? - 03/17/10 08:23 PM
If you need the sales contract to verify the terms of the sale to make a credit decision, then you would not also need all of the following to make your credit decision?
Appraisal to verify LTV
Title work to verify how title is held and not outstanding issues
W-2, Pay stubs and/or tax returns to verify income
Homeowners insurance to verify the collateral is covered
There is no way that you will convince me that any lender or loan officer that has any idea how to review and analyze credit needs a sales contract to make a credit decision.
A credit decision is saying no we won't make the loan as applied for, or we will make the loan as applied for subject to the verification of the value, clear title, sales terms, income, deposit reserves, etc.
Pray that the next time I visit my relatives in Lee's Summit and Springfield I don't stop in Columbia and shop your bank.
BTW - Go Tigers!!! I still watch all of their football and basketball games that I can.
Posted By: DD Regs
Re: When does pre-qual = application? - 03/17/10 08:26 PM
Brock,
You can request more information than the six pieces expressly listed in the definition of ‘application’ under RESPA; you cannot require that verification documentation of the information be provided before the GFE is issued to the borrower.
David L. Friend, Esq.
Office of RESPA and Interstate Land Sales
Department of Housing and Urban Development
To echo what CompDat is saying, I think what Mr Friend is saying
in his phrase after the " ; " that you cannot ask verification documents (Your requested purchase contract). JMHO
But then again you are in MO, the "show me" state
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 08:32 PM
Like I said, I don't believe this answer from HUD answers the question, but if I would have asked that same question to one of you guys (and I did) I know that I would not have gotten as favorable of a response. And I think if I asked HUD if we could wait until the appraisal comes back to issue the GFE they would clearly say no way jose.
And Go Mizzou! I will probably not be posting any comments on Friday from 1:30 to 3:30 as I will be watching my Tigers battle with the Clemson Tigers. Everyone can put their revolvers in their holsters at that time because I won't be posing any rediculous scenarious for everyone to shoot down.
Posted By: Dan Persfull
Re: When does pre-qual = application? - 03/17/10 08:36 PM
Brock, let me ask you this and then I am going to step away from this discussion.
If I apply to purchase a new primary dwelling (but I haven't decided what property I'm going to purchase yet) secured by my existing dwelling on a long term note would you not provide me a GFE because I don't have an executed sales contract on the property I'm going to buy?
If you would then explain to me the difference, because although I'm not using the new property (heck it's not even been identified yet) to secure the loan the sales contract would still verify the terms of the loan I'm applying for.
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 08:46 PM
Dan, I think we would view that as a refinance transaction, and honestly I don't think our company would do that type of loan, but I see your point. I don't disagree that in a perfect world we would want to issue a GFE as soon as someone comes in with the six pieces of information in the rule, but HUD put lenders in a real tough spot when they said that obtaining a property address is not considered a change of circustance.
Posted By: Dani York, CRCM
Re: When does pre-qual = application? - 03/17/10 08:52 PM
Obtaining a property address is not a changed circumstance if you issue the GFE without any property address being given/identified (ie-if I don't list it on my application).
If I list it on my application even though I have not executed a sales contract, I have still identified a property. So you issue me a GFE and I come back in a tell you that I found a different property and give you that address and a different loan amount (maybe the new house costs more), you can treat that as a changed circumstance and re-issue a GFE.
Posted By: Dan Persfull
Re: When does pre-qual = application? - 03/17/10 09:01 PM
I think we would view that as a refinance transaction,
So you're saying you CAN make a credit decision without a sales contract???
And as Dani said if the property address changes from the one identified then you have a changed cicumstance.
It's MILLER time!!!
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 09:31 PM
Dani did blow up my arguement about obtaining an address not constituting a changed circumstance, but that is the reason that this whole thing is screwing with our processes. I do think it more necessary on a purchase transaction to have the sales contract to make a credit decision than it would be on a refinance for the simple reason that the person has not fully identified the property address. I know I will get crucified for that but that is what it comes down to, making sure the person has settled on this particular property. I suppose I am arguing that the sales contract is necessary to make a credit decision because the sales contract is necessary to fix (not verify) the address. I see that the argument probably has one major hole in that the regs don't say that the borrower has to do more than give the property address to the lender. But it also does not say what it means to have a property address to place on the application. As I said before, I agree that it is safer to just issue the GFE even if the borrower gives you an address of a proeprty they saw online, but I still think there is room for making sure they are committed to this property by asking if the contract is executed.
Sorry to bother you guys all day.
Enjoy some green beer and forget about all this [censored]!!!
Posted By: Brock
Re: When does pre-qual = application? - 03/17/10 09:34 PM
Sorry for the sensored word. I didn't realize that c with a little rap was anything inflammatory.
Posted By: rlcarey
Re: When does pre-qual = application? - 03/18/10 12:28 AM
How can I commit to a property if I don't have a clue what a loan might cost me? (That would be like buying a car before asking the MPG)
That is the point of the GFE. I tell you I am interested in 123 Main St. and want to apply for $150,000 and you request whichever of the other four triggers you feel you need. You give me a GFE. I come back later and say OK I want to proceed (turning the RESPA app. into a Reg B app.). You say, this is what we need to proceed: sales contract, paystubs, tax returns, etc. Anywhere down the road where a change of circumstances in uncovered, you re-issue the GFE.
I really don't see the problem......
Posted By: David Dickinson
Re: When does pre-qual = application? - 03/18/10 01:51 AM
Brock: I think it's pretty clear from the consensus of the responders, that a purchase agreement is a verification document and can't be required for an application. HUD has made it very clear that you are required to issue a meaningful GFE as soon as possible. You don't need a purchase agreement to do that. You can ask for more info than 5 outlined in definition of an "application", but they can't be verification documents. It makes sense to me to know the term, type of loan, etc, (fixed or variable; 5, 10, etc. years; home equity, purchase, refinance), but that's about it.