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Adding Individuals to App to Help Qualify/Approval

Question: 
If an individual applies for a loan and they don't qualify, is the lender required to formally disposition (deny) the loan request? Or can they solicit other individuals to be added to the application to see if they would help qualify and get loan approval?
Answer: 

by Randy Carey:

That would be called a counter-offer, if the bank suggested or agreed to it. Otherwise, the bank would treat it as a denial and the customer would be free to reapply with a co-applicant or co-signer.

Answer: 

by Jim Bedsole:

In a counter offer, you have two options. Option 1 - you can make the counter offer only verbally or in writing and see if the customer accepts. If the customer accepts the counter offer, you have no further obligations under Reg B with regard to the denial of the original application. If the customer does not accept the counteroffer, you must still notify them in writing of the denial of the original application. Option 2 - you can issue a combined notice of adverse action on the original credit combined with the counter-offer (see model notice C-4 in Reg B). In this notice, you would specify a deadline time for the customer to accept the counter-offer. If the customer does not accept the counteroffer by the deadline, the loan would be treated as a denial, but no additional notification obligation would remain for the bank.

In your scenario, where you will likely still need to credit underwrite the additional applicant if one is offered, I'd probably use Option 1. But for other situations where the loan is completely underwritten and you know that if the borrower accepts the counteroffer, it's a done deal, I'd use Option 2. An example of that may be where the customer originally applied for a loan of $50,000. Upon getting a collateral valuation, you find the collateral only supports a loan amount of $40,000. Everything else about the applicant's credit checks out. In that case, I'd issue a denial for the $50,000 loan request combined with the counteroffer of a $40,000 loan under Option 2.

Answer: 

by Richard Insley:

Politically correct speech triumphs over meaning!

Who is (are?) "they"? If an applicant is an individual, then he or she is "he" or "she", not the plural "they." Once that is settled, we need to know whether the "they" who might solicit other individuals is the same "they" as the applicant. Finally (and assuming there are understandable answers to the preceding questions), is the "they" who might help qualify for the loan the same person, the same people, or some other totally unrelated entity?

Randy's and Jim's interpretations of the question and responses are probably appropriate, but it's also possible that the inquirer is thinking that the second "they" (the party(ies) who might solicit additional applicants) includes the bank. Bank representatives should not solicit any additional participants. The bank's sole duty is to render a decision that is based on the facts presented. If the initial applicant(s) is(are) insufficiently qualified, the applicant(s) is(are) free to solicit others, but the bank must not participate or express any preference.

First published on 01/06/2019

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