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#1917353 - 04/24/14 07:18 PM
Re: Preapproval vs Prequalification
peony
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I know, but when they specifically discuss prequals...they only say you must treat it as an application for .9 purposes..it does not carry it further to .13.
I would have to see something more convincing...that's carrying things further than intended, IMHumbleO.
Last edited by RR Joker; 04/24/14 07:18 PM. Reason: wrong word
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#1917357 - 04/24/14 07:19 PM
Re: Preapproval vs Prequalification
peony
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IMHO, that's because there's no need to specifically carry it to .13........it is an 'application' once you deny it, so it meets the requirements of .13.
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#1917369 - 04/24/14 07:42 PM
Re: Preapproval vs Prequalification
peony
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I agree that obtaining it up front is incorrect, and, at times, i agree with the 'good luck with that'...i just don't see an exemption from it.
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#1917387 - 04/24/14 08:12 PM
Re: Preapproval vs Prequalification
peony
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Great example of what the commentary is trying to explain. It's common courtesy...don't lead the person on if you know you cannot do anything for them...let them know.
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#1917390 - 04/24/14 08:15 PM
Re: Preapproval vs Prequalification
peony
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Reg. B says a denied prequal is an "application" for Reg. B purposes.
It also says that an "application" for the purchase or refinance of a primary residence needs GMI. I don't disagree that it may be silly, or impractical or anything else.
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#1917391 - 04/24/14 08:17 PM
Re: Preapproval vs Prequalification
peony
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IN the commentary to the definitions of application, it discusses when a prequal becomes an application. It becomes an application for purposes of part .9. No mention of any other section applicable to 'applications'.
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#1917398 - 04/24/14 08:27 PM
Re: Preapproval vs Prequalification
peony
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I don't see an exemption for it. I don't know how you get around this language, since Reg. B seems to go to great lengths to distinquish between "inquiries and prequalifications" and "applications". "On the other hand, a creditor has treated a request as an application, if, after evaluating information, the creditor decides that it will not approve the request and communicates that decision to the consumer."
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#1917426 - 04/24/14 08:59 PM
Re: Preapproval vs Prequalification
peony
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This just makes me want to say NO to doing prequals all together.
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#1976890 - 11/17/14 07:56 PM
Re: Preapproval vs Prequalification
peony
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Dredging up an old - but seemingly popular - debate. Having read through several threads and opinions on this subject, there does not seem to be industry agreement on how the lender handles the Reg B requirements (other than the AAN requirements) following a consumer's prequalification request. Respected and qualified individuals offering differing opinions, especially as to the requirement to collect GMI and provide the appraisal disclosure on a prequalification request. Reading the regulation and OSC over and over again to try to decipher what the authors had in mind, doesn't it all boil down to the basic definition and comment in the OSC that lead one to think the answer is dependent upon whether the request is defined as an application as per the creditor's definition?
(f) Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested.
And the OSC:
2(f) Application.
1. General. A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants.
So, if the creditor's loan policy details that an application for a home mortgage loan will consist of A, B & C, and documents to verify X, Y and Z, but a prequalification request doesn't consist of all of these elements (no verifications, e.g.), then the creditor is not required to consider the prequal as an "application" as per the latitude provided in the OSC to Reg B? This latitude obviously does not extend to 1002.9, in which the authors went out of their way to define when the AAN is required.
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#1977255 - 11/18/14 08:17 PM
Re: Preapproval vs Prequalification
peony
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I think you're mixing the definition of "application" and "completed application" together. Yes, they are both in §1002.2(f), but there are 2 terms in that section. Look closely at §1002.2(f) and you'll see the first 2 sentences define "application": “...any oral or written request for an extension of credit that is made in accordance with the procedures established by a creditor for the type of credit requested.” Then, in the 3rd sentence, the regulation defines "completed application" (the term is in italics): "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 (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information.[/i] Here's the tricky part: Most regulatory requirements are sparked from receiving an application, not a completed application. The commentary you quote about establishing your own process is referring to a "completed application". For example, you can require that all home loans requests be in writing, but you can't ignore the part of the definition that says an application can be oral. So if someone calls you and says they want to apply for a home loan and gives you some information, you may have an application, although you may not have a completed application yet. Also, your last paragraph makes it sound like you want verification documents (X, Y & Z) before you call it an application. That's not legal. Again, Reg B says an application can be verbal and RESPA prohibits verification documents until after a GFE is issued and intent to proceed is received. Hope this helps your understanding. If not, I teach a 2 hour webinar for BOL on this topic (yep - it's that hard!). You can find more information here: https://www.bankersonline.com/bankerstor...roducts_id=1103
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#1977338 - 11/18/14 10:23 PM
Re: Preapproval vs Prequalification
David Dickinson
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Thank you for the response. I was deliberately not bringing RESPA into the discussion so as not to muddy the waters, as Reg B and RESPA definitions of an application are not consistent. And I agree, using verification documents was a bad example on my part as it is more pertinent to the definition of a completed application for, among other things, timelines for notification to the applicant under section 1002.9. I realize there is much left to interpretation, but there are other industry voices that claim that it is illegal to request GMI on a prequalification request. I have questioned the basis and was presented with the theory that while whether or not a prequalification request is an application under Reg B is somewhat ambiguous (I still have my 10 page FDIC booklet from 1996 that attempts to make it clear!), the regulators only went out of their way to clearly define an application for purposes of providing an AAN in the OSC, 1002.2(f)3.
Your explanation and rationale for requiring GMI on a prequalification request is sound, and what I have believed to be true as well.
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#1977376 - 11/19/14 01:43 PM
Re: Preapproval vs Prequalification
David Dickinson
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I think you're mixing the definition of "application" and "completed application" together. Yes, they are both in §1002.2(f), but there are 2 terms in that section. Look closely at §1002.2(f) and you'll see the first 2 sentences define "application": “...any oral or written request for an extension of credit that is made in accordance with the procedures established by a creditor for the type of credit requested.” Then, in the 3rd sentence, the regulation defines "completed application" (the term is in italics): "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 (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information.[/i] Here's the tricky part: Most regulatory requirements are sparked from receiving an application, not a completed application. The commentary you quote about establishing your own process is referring to a "completed application". For example, you can require that all home loans requests be in writing, but you can't ignore the part of the definition that says an application can be oral. So if someone calls you and says they want to apply for a home loan and gives you some information, you may have an application, although you may not have a completed application yet. Also, your last paragraph makes it sound like you want verification documents (X, Y & Z) before you call it an application. That's not legal. Again, Reg B says an application can be verbal and RESPA prohibits verification documents until after a GFE is issued and intent to proceed is received. Hope this helps your understanding. If not, I teach a 2 hour webinar for BOL on this topic (yep - it's that hard!). You can find more information here: https://www.bankersonline.com/bankerstor...roducts_id=1103 Now I remember where I was going with this, when you throw in Reg C OSC to define application, pre-qualification, and pre-approvals (bolding & underline added for emphasis): Application.
1. Consistency With Regulation B. Bureau interpretations that appear in the official staff commentary to Regulation B (Equal Credit Opportunity, 12 CFR part 1002, Supplement I) are generally applicable to the definition of an application under Regulation C. However, under Regulation C the definition of an application does not include prequalification requests.
2. Prequalification. A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective applicant would likely qualify for credit under an institution's standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution's normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the HMDA/LAR, even though these requests may constitute applications under Regulation B for purposes of adverse action notices.
3. Requests for preapproval. To be a covered preapproval program, the written commitment issued under the program must result from a full review of the creditworthiness of the applicant, including such verification of income, resources and other matters as is typically done by the institution as part of its normal credit evaluation program. In addition to conditions involving the identification of a suitable property and verification that no material change has occurred in the applicant's financial condition or creditworthiness, the written commitment may be subject only to other conditions (unrelated to the financial condition or creditworthiness of the applicant) that the lender ordinarily attaches to a traditional home mortgage application approval. These conditions are limited to conditions such as requiring an acceptable title insurance binder or a certificate indicating clear termite inspection, and, in the case where the applicant plans to use the proceeds from the sale of the applicant's present home to purchase a new home, a settlement statement showing adequate proceeds from the sale of the present home.So, in a nutshell, you can be a HMDA bank, not be required to collect GMI nor report pre-quals under Reg C if you don't have a covered pre-approval program, but still be required to collect GMI on pre-quals under Reg B? (and of course, provide AAN as again, the regulators make it perfectly clear what is an application for purposes of adverse action). As you can tell, I am getting push-back from LO's that say we shouldn't be collecting GMI on pre-quals. And you're right - 'tis that hard!
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#1978071 - 11/21/14 02:26 PM
Re: Preapproval vs Prequalification
David Dickinson
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I think you've got it!
About GMI on Prequal's: Here's my take, in a logical step by step format.
1. I don't think you should collect GMI on Prequals under Reg B or Reg C.
2. Once the property is identified, you now have an application for §1002.13 of Reg B and HMDA.
3. Most loan officers don't collect GMI at that point.
4. I don't see examiners citing banks for collect GMI on prequals as they realize #2 (in my outline).
5. Therefore, it's easier and not very risky to just collect GMI on prequals at the time of initial application.
About a month ago, someone posted a survey here at BOL asking "When do you collect GMI on Prequals?" It was about 50/50 (½ collecting like #5 and ½ saying they wait). Maybe you can find that string. Good info. Thank you, David!
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