Pre-qualification

On a pre-qualification request, the applicant chooses which loan product they would like to apply for. If an applicants selects all the products we offer and only qualifies for one and not the others, do we need to send a denial notice on the other products? For example, send them a pre-qual letter for product A and a denial letter for products B & C.

Thanks,

No. As long as applicants are being encouraged to proceed, you are not denying them. This Commentary and guidance should help:

…a creditor may treat the request as an inquiry if the creditor evaluates specific information about the consumer and tells the consumer the loan amount, rate, and other terms of credit the consumer could qualify for under various loan programs, explaining the process the consumer must follow to submit a mortgage application and the information the creditor will analyze in reaching a credit decision.

…if, after evaluating information, the creditor decides that it will not approve the request and communicates that decision to the consumer. For example, if the creditor tells the consumer that it would not approve an application for a mortgage because of a bankruptcy in the consumer's record, the creditor has denied an application for credit. [Commentary to §1002.9 #5]


…as long as prospective applicants are being encouraged to proceed, lenders have reasonable discretion in defining what constitutes an application [FDIC FIL 35-96]

If we do not encourage them to proceed with an application for products B & C because we evaluated the credit report and would not make the loan due to delinquent credit, is denial notice required?

We are encouraging them to apply for product A because we gave them a prequalification letter.

thanks,

You ARE encouraging them to proceed with getting a loan from your institution by telling them they qualify for product A. Therefore, no AAN is required. Let me illustrate:

I come in and ask about getting a home loan. I don't know anything about the process but mention I read online about VA and our state's First Time Home Buyer program. You learn that I'm not a veteran (so I don't qualify for a VA loan) and my income is too high to qualify for the First Time Home Buyer program. Thus, you're telling me I don't qualify. BUT, you tell me you think I might qualify for other programs you have (2nd market, in-house, etc.). You are encouraging me to proceed, so no denial is triggered at this time.

I hope this clarifies the issue and helps your understanding.
_________________________

I think i got it....

(1) Applicant qualifies for any one of the products they chose, no denial notice.
(2) Applicant does not qualify for any products they chose, denial notice required stating all reasons for the different programs
on one notice.

When an applicant chooses a product they want that they don't qualify for, but they do qualify for another product, we are sending out a counter-offer for the product they do qualify for. Is this okay?

Thanks,

I think you got it too!


Yes.

Thank you.

David, i know this post is a little aged but I have a question: if we have a prequalification request and the employee works with the applicant to get the DTI in line (example the applicant says well I'll pay off my car" and that brings the DTI in line, would we 1) no longer have a prequal but an application and 2) would we need to send an adverse action if the applicant doesn't come forward and accept the loan?

Please do not make duplicate posts.

I'm sorry. I thought I was asking a different question based on the thread. This question is about whether or not the employee assisting/encouraging the applicant to move forward by making DTI adjustments would warrant an AAN if the borrower decided not to proceed. She didn't initially qualify with a DTI of >50% & the debts had to be adjusted. This is a different question.

They applied - you told them they do not qualify. How is that not a denial?

My mistake. I read the question too quickly just after answering the previous one.

As Randy stated once you told them they did not qualify it became an application for the purposes of 1002.9.

Thank you Dan. It's all in how the question is asked and it's hard to do that sometimes. My apologies. As per my first message this was a prequalification. The employee did not deny the prequalification but offered the prospective mortgage applicant prequalification advice and coaching as to what would strengthen the applicant's application and encourage her to move forward. That being a lower DTI. During the conversation the applicant stated she was willing to lower her DTI and stated how she would do it so adjustments were made to see if DTI might come in line with investor criteria before moving forward and it did. She later withdrew. I'm just trying to determine if an AAN should have been sent or if a withdrawal was appropriate. As presented on the "prequal" the DTI would not work...I think the line is probably crossed with the DTI and it is a denial but "coaching for DTI" may be allowed as a prequal and it is a WD. Your thoughts?

You denied the applicant. Giving them advice as to how to correct any deficiencies noted in their current application is neither here nor there.

Here is an interesting read, though I have no idea if it's still any good. It was just interesting info.
https://www.fdic.gov/regulations/compliance/mortgage/preq2.pdf

No need to reply. Hope your holiday weekend was good and you have a great week. Thank you.