August 20, 2014 at 11:00 am EDT #6279kccoMember
I have been told at past trainings to NOT gather the gov mon info on a pre-qual or pre-approvals…it could come back and bite you for discrimination, etc etc. A seasoned Compliance Officer and Attorney at a very large bank said that the examiners “camped out” at his bank for months making sure they were not discrimating because they were collecting the info on their pre-quals and pre-approvals. They immediately stopped collecting it. We DO send out adverse actions on pre-approvals. We have been told that if we send out a denial then we should have gotten the info. However, we DO NOT report pre-approvals for HMDA because we do not have a pre-approval program. What gives? Can you please direct us on what to do?August 20, 2014 at 2:57 pm EDT #6286rcooperMember
First you need to determine if you have a prequalification or preapproval program or both. The commentary of 1002.2 and 1002.9 has discussion on these terms, but I have also linked an Fed document that, although a little old, has a good discussion on what constitutes each: https://www.phil.frb.org/bank-resources/publications/compliance-corner/2004/second-quarter/q2cc2_04.cfm.
Also, there are GMI requirements under Reg B 1002.13 that apply to applications for credit primarily for the purchase or refinancing of a dwelling to be the applicant’s principal residence and to be secured by that dwelling. If you have a preapproval program where you’ll be either approving or denying the preapproval, the request is an application (see commentary below). A prequalification becomes an application only when you make a decision about extending credit, so if you deny it then it’s an application and you must follow AAN requirements if needed.
Commentary 1002.2(f)(5): Examples of an application. An application for credit includes the following situations:
i. A person asks a financial institution to “preapprove” her for a loan (for example, to finance a house or a vehicle she plans to buy) and the institution reviews the request under a program in which the institution, after a comprehensive analysis of her creditworthiness, issues a written commitment valid for a designated period of time to extend a loan up to a specified amount. The written commitment may not be subject to conditions other than conditions that require the identification of adequate collateral, conditions that require no material change in the applicant’s financial condition or creditworthiness prior to funding the loan, and limited conditions that are not related to the financial condition or creditworthiness of the applicant that the lender ordinarily attaches to a traditional application (such as certification of a clear termite inspection for a home purchase loan, or a maximum mileage requirement for a used car loan). But if the creditor’s program does not provide for giving written commitments, requests for preapprovals are treated as prequalification requests for purposes of the regulation.
ii. Under the same facts as above, the financial institution evaluates the person’s creditworthiness and determines that she does not qualify for a preapproval.
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