Action Taken Code: 3 or 5
We are searching for clarification on reporting a loan as Application Denied Code 3 or Closed for Incompleteness Code 5 or not report. 3 Scenarios: 1) Status: Borrower was sent a Notice of Incomplete prior to 30 days and is awaiting customer response. Q: Does this get reported? If so, what action code? (We feel it is still open and not reported until the adverse action is sent.) 2) Status: Borrower was either sent a Notice of Incomplete and got no customer response within given time frame and was sent an Adverse Action Form (Notice of Action Taken) marked “Incomplete”. Q: Since we sent a Notice of Action Taken (Adverse Action form) to the borrower saying no further consideration would be made to their application due to the incompleteness, would this be reported as a rejection #3 or a file closed for incompleteness #5. 3) Status: Borrower was sent an Adverse Action Form (Notice of Action Taken) within 30 days marked “Incomplete”. Q: Again, since an Adverse Action Form was sent informing the borrower that no further consideration would transpire due to the incompleteness, would this be reported as a rejection # 3, or a file closed for incompleteness #5. I have already reviewed ECOA 202.9(c)2 and Appendix A Part 203 on Action Taken. This is not clear. If anyone else has faced this, please feel free to offer your solution. Thanks! __________________________
According to the Regulation C 2004 Staff Commentary... http://www.ffiec.gov/HMDA/pdf/regulationc2004.pdf (which is a must have for any compliance professionl)... e. Use Code 5 if you sent a written notice of incompleteness under section 202.9(c)(2) of Regulation B (Equal Credit Opportunity) and the applicant did not respond to your request for additional information within the period of time specified in your notice. Do not use this code for requests for preapproval that are incomplete; these preapproval requests are not reported under HMDA. So my interpretation would be: 1) Not reportable 2) 5 - File closed for incompleteness 3) 5 - File closed for incompleteness
I attended the Mastering HMDA Workshop given by Professional Bank Services in July of 2006, and Jim Ragan (Senior Consultant) had a difference of opinion on this subject. He clearly stated that if we were audited and an Adverse Action Notice was in the file, the loan should be coded as a denial. "When an application lacks sufficient information for the creditor to make a credit decision, Regulation B allows the creditor to either deny the loan request, or send the applicant a written notice of incompleteness within 30 days after receipt of the incomplete application."
Well in the end it is up to the institution to make the fianl decision on how to code those loans. One thing I know for sure though, if you do anything... do it consistently.
I want to thank everyone for offering their opinion and input. It is obvious that there is no clear set answer here. (In some ways, that makes me feel a little better about being confused.) Anyway with conflicting opinions, we opted for an outside counsel recommendation. In weighing our specific practices, it was decided that denial was the way to go. (We do provide an adverse action form for all incomplete files.) Consistency is crucial, as JAW pointed out. Advisably, this may not fit everyone's way of operating, but Appendix A part 203 - Reasons for Denial: provides for "Credit Application Incomplete" (#7), therefore indicating it is an acceptable reason for denial. Thanks, again.