Is it a problem to deny a loan application for a second mortgage because the first mortgage is held by another institution? Our written policy and procedures are silent on this situation. The bank prefers not to make this type of loan, but I cannot say it will never happen for select customers.
Regulation B requires you to state the primary reason for denying the loan. If the reason is the identity of the first lien holder, then report that reason. Since use of the reason is not consistent you are at risk of a fair lending problem. Monitor carefully to determine if there is a pattern of disparate treatment on a prohibited basis.