Application Disposition

Posted By: VRV

Application Disposition - 08/26/10 08:19 PM

I need some advice on how an application should be dispositioned. The application was approved in accordance with the applicant's request, but the collateral is located in a SFHA, so it was conditioned upon the applicant obtaining satisfactory flood insurance. The borrower refuses to purchase flood insurance. Is this application Approved but not Accepted because we are willing to grant the loan that the applicant requested, OR is it Incomplete because the borrower won't provide the flood insurance we need in order to do final approval and close the loan?
Posted By: RR Joker

Re: Application Disposition - 08/26/10 08:43 PM

INteresting...Incomplete seems reasonable. So does denial based on insufficient value or type of collateral. Why? Without required insurance, the collateral type is no good to you.

I think you can get by either way! But I don't agree with Approved-not accepted.
Posted By: jlroberts

Re: Application Disposition - 08/27/10 01:33 AM

We would code it as Approved Not Accepted. How would you code it if they never brought in with their hazard insurance information or any other "condition". Whatever you do be consistent...

IMO, since you approved the loan I don't think you can say the application is incomplete. I am not sure you can turn an approval into a denial unless you did a Counter Offer. We would not consider the flood insurance requirement a Counter Offer.
Posted By: VRV

Re: Application Disposition - 08/27/10 05:37 PM

This has been a difficult topic for me. Actually, we don't currently use Incomplete as a disposition. Instead, we deny the loan for incompleteness, although we are considering changing our practice back to using Incomplete as a disposition.

JR, I can see your point about the conflict of calling it Incomplete if we have already deemed it to be a complete application and rendered an initial decision, albeit contingent upon receiving additional documentation/information.

To answer your question, currently, if hazard insurance is a condition for final approval, and the borrower doesn't provide it, we would deny the application for incompleteness. I don't really like this practice, but Im not comfortable using Approved not Accepted when we haven't given it a final approval yet and cleared it to close. We won't do that until we receive everything we asked for.

This seems like such a basic question, but I can't seem to resolve for a certainly how Reg. B and HMDA require it to be handled? Everyone must deal with similar situations. I would love to know what others are doing. Thanks.
Posted By: RolTyde

Re: Application Disposition - 08/27/10 05:52 PM

Maybe this will help. It's from HMDA FAQ on the FFIEC website.

" 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."

Here's the link: