Online Mortgage Application Questions

Answered by:

Question:

We have an online mortgage center that allows customers to apply for a mortgage online. The issue we run into is with customers who start their application and don't finish. Right when they start, credit is pulled and until they hit the submit button and acknowledge all the disclosures, we don't really have an application. However, credit has been pulled. My problem/concern is really four-fold. <ol><li>Would this loan be HMDA reportable (if it met one of the three reasons) based on just credit being pulled and an application not being completely finished? <li>Does Reg Z start the day credit was pulled regardless of whether the customer completed the rest of the information or not? <li>If our Reg Z (three day) count starts when credit is pulled, then what do we do if we aren't able to get the customers to complete the application within that three day time frame? <li>Would those loans need to get a Notice of Action taken within the three days stating that it was closed for incompletion?</ol>

Answer:

Why are you pulling credit reports immediately? If you don't believe they have submitted an application, you don't have a legitimate business need to do so. I think this practice not only creates lots of questions, such as you've asked, but also creates other legal and regulatory issues.

If you have enough information to make a decision, you have an application [refer to Section 202.2(f) and its commentary]. Imagine the credit report is bad enough that you wouldn't make the loan no matter what else is submitted. This is enough info to say "no"; therefore, it is an application and an AAN is triggered. If this is the case:

This would be HMDA reportable (if HMDA is applicable).
You would need to deny before three days so you don't trigger a P-TIL disclosure.
You deny the request. The customer has no further action necessary.
You would be denying it - not closing it for incompletion.

Let's assume the credit report is good, but you don't have enough information to make a decision. You may not have a completed application, but you may have an application for TIL and RESPA. This is difficult to answer, as it would depend on many other variables.

I highly recommend you visit the right to pull a credit report at this stage of the process. I also recommend that you and your lenders receive application training.

First published on BankersOnline.com 2/08/10