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HMDA & ECOA: Rejected closed end counteroffer

We have an application that started as an $18,000 home equity line of credit (HELOC) for home improvements. The bank counteroffered the applicant a closed end mortgage in the amount of $8,671 and they accepted that offer and their government monitoring information was then collected and disclosures were sent. Days later the applicants called back and stated after further consideration they were not comfortable with doing the closed end mortgage, which raises a couple questions: 1 – do we go back to the original request of a HELOC and deny the HELOC application for excessive LTV listing our counteroffer; or 2 – do we report the accepted closed end mortgage counteroffer as home improvements on our HMDA LAR as a withdrawn request?

The situation you describe raises concerns under both ECOA and HMDA. Let’s take ECOA first. The purpose of the adverse action notice requirement is to advise the applicant of the reasons their incoming application was denied. When a situation involves a counter- offer that is not accepted, as in this case, the reasons for adverse action must reach back to the original reasons for not meeting the original request but making a counteroffer. So the ECOA notice goes back to the beginning.

This is not a withdrawn application but a rejected counteroffer. Now – and this is tricky – the resolution underECOA does not dictate how the loan should be reported on theHMDA LAR. The best way to treat this is as an application for a HELOC that was counteroffered and not accepted – code 3 if you deemthe counteroffer for a closed end-loan not to have been accepted. Thatmeans deciding whether to report the portion of theHELOC line intended for home improvement (maybe $8,671 of the requested $18,000) or the full amount requested sincemost borrowers don’t know at the time howmuch would be needed.

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First published on 05/30/2016

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