Loan Application Action Taken
We’ve all heard it over and over. To every action there is a reaction. The same is true of Loan Application outcome/action taken. The purpose of this article is to discuss file documentation of action taken subsequent to the Application.
Note that a prequalification is NOT an application. The prequalification file is simply noted as to whether an application resulted or NOT. However, the prequalification can result in a denial. This is NOT HMDA applicable. Adverse Action/Notice of Action Taken applies.
In terms of an application, as an example, a closed end application under Reg. Z/ RESPA (TRID) includes:
These six (6) items, plus any other information that the lender may require – but not verification:
· Monthly Income
· Property Address
· Estimated value of the property
· Loan Amount
At that point, required documentation includes:
1. COUNSELING LIST (3 DAYS)
2. WRITTEN LIST/TOOLKIT (3 DAYS)
3. LE (UNLESS DECLINED WITHIN 3 DAYS PROVIDE WITHIN 3 DAYS)
4. SERVICING TRANSFER (3 DAYS)
In the credit application process, under Fair Credit Reporting Act (FCRA), the Consumer Reporting Agency is only permitted to share a credit report with a financial institution for a “permissible purpose.” Within this context, a credit transaction and the associated review and collection of that transaction information equates to such a purpose. The loan application provides the necessary authorization.
Now to briefly summarize potential scenarios beyond a loan that can occur and should be appropriately documented in the file.
1. Approved But Not Accepted (ANA). In this scenario, the applicant conditions have been met, and the applicant is fully approved. The loan is set to close; closes but is rescinded; OR has only outstanding property conditions. For example, the property does not have clear title, failed pest inspection, etc. In these type instances document within the file:
a. Date Approved
b. Reason Not Accepted
2. Declined. All applicable reasons up to four should be disclosed. If up to four denial reasons apply, beyond HMDA, it is important to document all the reasons. This will be to your benefit in a Fair Lending Comparative file analysis as to why a minority applicant (race or sex) applicant may have been denied vs. a non-minority applicant which was NOT. For HMDA applicable loans (HMDA reporters) a documented secondary review by a separate lender should be performed prior to communication of the credit decision to the applicant.
The creditor must notify the applicant of adverse action within 30 days after receiving a complete credit application.
The adverse action notification must be in writing and must contain the following:
· Name and address of the creditor;
· Nature of the action that was taken;
· Identity of the federal agency responsible for enforcing compliance with the act for that creditor; and
· A statement of the specific reason(s) for the action taken; or
· A disclosure of the applicant’s right to a statement of reason(s) within 30 days after receipt by the creditor of a request made within 60 days of such notification along with the name, address, and telephone number of the person who can provide the specific reason(s) for the adverse action.
FOR PURPOSES OF RENDERING AN ADVERSE ACTION, whenever you receive enough information to make a credit decision; and you convey that decision to the applicant (written application required for purchase or refinance of 1-4 family principal dwelling and secured by that dwelling), required documentation includes
a. NOTICE OF INTENT TO APPLY FOR JOINT CREDIT PRIOR TO APPLICATION COMPLETION (PERSONAL OR BUSINESS)
b. APPRAISAL DISCLOSURE WITHIN 3 BUSINESS DAYS TO PRIMARY APPLICANT (PERSONAL OR BUSINESS)
c. PROPER CREDIT BUREAU DISCLOSURE (CONSUMER)
3. Closed For Incompleteness. When an application is missing information the applicant can supply and does not provide sufficient data for a credit decision to be made, the creditor should provide a Notice of Incompleteness which must include at least the following:
a. Name and address of the applicant;
b. Requested information;
c. Reasonable deadline for the applicant to provide information;
d. Inform the applicant that failure to provide the requested information will result in no further consideration given to the application.
The written Notice of Incompleteness must be mailed within 30 calendar days of receiving an incomplete application. The creditor has no further obligation if the applicant rails to respond.
4. Withdrawn By Borrower. This is BEFORE a credit decision is made. The absence of a reply from the applicant is NOT a withdrawal. An application must be “expressly” withdrawn by written or verbal communication from the applicant.
When the creditor approves a credit application and both parties expect that the applicant will inquire about its status, but the applicant does not inquire within 30 days after application, the approved application is treated as withdrawn.
Hopefully, this discussion will provide aid and assist in organization of the Loan Application Action Taken process in your financial institution.
May 31, 2019