Pre-Approvals
How should the following be coded? Client applied for a pre-approval. The loan was approved "waiting for property". The client subsequently provided a purchase agreement, however, prior to ordering an apprasial decided to obtain the loan from another lender. The loan is currently being reported as pre-approval approved not accepted (8). Since an address was know, should it be coded as approved not accepted (2) or should it remain 8 as the appraisal was never ordered?
I have reveiwed both the 2006 HMDA Getting it right and staff commentary and they don't provide much guidance on the Action Code 8. In my "opinion", I would go with the Action Code 2 and a PreApproval - 1 since you now have a valid Property Address. If there was no address I would have went with code 8. I would be happy to change my position if someone finds something in writing to the contrary. The following example is similar.... EXAMPLE from http://www.stlouisfed.org/hmdaregcamendments/pages/preapproval.html FACTS: Mortgage Lending Inc. is contacted by Matt and Helen Barstow, who are in the process of buying their first house. The husband and wife complete a written application and provide a great deal of personal financial information, including where each is employed, monthly income, personal assets and current debts. The mortgage company evaluates the credit according to Fannie Mae underwriting guidelines and issues a written loan commitment for $150,000. This commitment is good for the next 60 days. The only limitation placed on the commitment is that a suitable property is found and that the couple’s financial position does not substantially deteriorate during the term of the commitment. QUESTION Is this a request for preapproval that is subject to Regulation C? ANSWER Yes, this request is an example of a request for preapproval. The mortgage company has an established formal program in which applications are underwritten using standards that are similar to those used in underwriting a standard mortgage loan application. Once the applications are approved, the mortgage company issues a formal written loan commitment for a specified amount for a specified time period. The limitations that are placed on each commitment are limited to those specifically permitted in a preapproval program by the definition in Regulation C. QUESTION If within the 60-day time period that is provided in the loan commitment, the couple locates a home and the mortgage company extends a mortgage loan, how would this transaction be reported? ANSWER In this case, the preapproval resulted in a loan origination. Therefore, the mortgage company should report a Code 1 for “preapproval was requested” in the preapproval field and a Code 1 for “loan originated” in the “action taken” field.
quote:
Originally posted by jaw
I have reveiwed both the 2006 HMDA Getting it right and staff commentary and they don't provide much guidance on the Action Code 8. In my "opinion", I would go with the Action Code 2 and a PreApproval - 1 since you now have a valid Property Address. If there was no address I would have went with code 8. I would be happy to change my position if someone finds something in writing to the contrary. The following example is similar.... EXAMPLE from http://www.stlouisfed.org/hmdaregcamendments/pages/preapproval.html FACTS: Mortgage Lending Inc. is contacted by Matt and Helen Barstow, who are in the process of buying their first house. The husband and wife complete a written application and provide a great deal of personal financial information, including where each is employed, monthly income, personal assets and current debts. The mortgage company evaluates the credit according to Fannie Mae underwriting guidelines and issues a written loan commitment for $150,000. This commitment is good for the next 60 days. The only limitation placed on the commitment is that a suitable property is found and that the couple’s financial position does not substantially deteriorate during the term of the commitment. QUESTION Is this a request for preapproval that is subject to Regulation C? ANSWER Yes, this request is an example of a request for preapproval. The mortgage company has an established formal program in which applications are underwritten using standards that are similar to those used in underwriting a standard mortgage loan application. Once the applications are approved, the mortgage company issues a formal written loan commitment for a specified amount for a specified time period. The limitations that are placed on each commitment are limited to those specifically permitted in a preapproval program by the definition in Regulation C. QUESTION If within the 60-day time period that is provided in the loan commitment, the couple locates a home and the mortgage company extends a mortgage loan, how would this transaction be reported? ANSWER In this case, the preapproval resulted in a loan origination. Therefore, the mortgage company should report a Code 1 for “preapproval was requested” in the preapproval field and a Code 1 for “loan originated” in the “action taken” field.
A pre-approval without an appraisal and the borrower has withdrawn, I would code as a 5. File is closed for incompleteness, since an appraisal has not been received and the underwriting is not complete.
One other idea on this - Did the client expressly provide you with anything that said they did not want to use your services and that they were going to another lender? If they did, then this could be treated as Application Withdrawn (4). But I would only suggest using this if you actually received something from the borrower.
PreApprovals do not require an appraisal they just need to be underwritten using standards that are similar to those used in underwriting a standard mortgage loan application (BECAUSE THERE IS NO PROPERTY INVOLVED AT THIS POINT). If the applicant is denied at this point it is a slam dunk 7. But when would an 8 actually be applicable? Once there is a property involved, it seems to move to the next level and becomes an application. If you give some one a PreApproval approval, they are not going to reject you until it moves forward into an application process (when they find a property) at which point they may want to shop around for the best rate possible. So if this example is not an 8, what would be a scenario for an 8?
We use an action code 8 for a pre-approvals with or without a property address, before the file goes to underwriting for a complete credit review and they are denied. At which point we will also send a ECOA letter. A pre-approval for our company is that the borrower is approved if you the borrower can provide documentation to support their asset/income, etc. stated in application. [:I]
I need to retrack my statement about withrawn code 4 for a preapproval. According to Appendix A of Reg C : d. Use Code 4 only when the application is expressly withdrawn by the applicant before a credit decision is made. Do not use code 4 if a request for preapproval is withdrawn; preapproval requests that are withdrawn are not reported under HMDA. I apologize for the incorrect information.
DISTINGUISHING PREQUALIFICATIONS FROM PREAPPROVALS Determining whether a request by a potential applicant is for prequalification or preapproval is critical in deciding what applications to report under HMDA. The primary differences between them are that a prequalification is a less formal request in which the underwriting is less rigorous and the lender makes no binding written commitment to provide financing. The commentary to Regulation C differentiates between them as follows: PREQUALIFICATION A prequalification request is a request by a prospective loan applicant for a preliminary determination on whether the prospective applicant would probably qualify for credit under an institution's standards or for a determination of the amount of credit for which the prospective applicant would probably qualify. PREAPPROVAL A preapproval request is a request by a prospective loan applicant in which the lender has calculated the applicant’s buying power and has committed in writing to make the loan, provided the home's value draws an adequate appraisal. The lender verifies the applicant’s income, asset and debt information. Preapprovals are generally more time-consuming than prequalifications because the lender may request copies of tax records, pay stubs and bank records, and may pull a copy of the applicant’s credit report and check for any inconsistencies in work or credit history.
Request for Preapproval (if they have a formal preapproval program) then the code should be #1-Preapproval Requested. Action Taken--- First I would determine how the institution defines their "completed application." If this was considered a "completed application" and was approved I would code it as a 2. If the application was approved pending further information, like the appraisal or any other financial information, then I would code it as an 8. if approval is conditioned on a satisfactory appraisal and, despite notice of the need for an appraisal, the applicant declines to obtain an appraisal or does not respond to the lender's notice, then the application should be coded "file closed for incompleteness."