WHEN DO WE HAVE AN APPLICATION?

We have had several recent questions on this topic. What constitutes an application for TRID is very different from the concept of “application” for the purpose of providing an adverse action notice under Regulation B or reporting data under Regulation C. It would take a large book to thoroughly explore all the nuances of “applications” under federal laws. This article explores only a few basic concepts.

Regulation Z

Under Section 1026.2(a)(3)(ii), for transactions subject to TRID rules, an application consists of the submission of:

  • The consumer’s name;
  • The consumer’s income;
  • The consumer’s social security number to obtain a credit report;
  • The property address;
  • An estimate of the value of the property; and
  • The mortgage loan amount sought.

Comment 2(a)(3) clarifies that the definition does not prevent a creditor from collecting whatever additional information it deems necessary in connection with the request for the extension of credit. However, once a creditor has received the six pieces of information, it has an application for purposes of the requirements of Regulation Z. A submission may be in written or electronic format and includes a written record of an oral application.

ECOA/Regulation B

Regulation B defines the term “application” to mean an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. An application is deemed to be “complete” once you have received all the information that you regularly obtain and consider in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral).

Comment 2(f) – 1. states, “A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants.”

The term “procedures” refers to the actual practices followed by a creditor for making credit decisions as well as its stated application procedures. For example, if a creditor’s stated policy is to require all applications to be in writing on the creditor’s application form, but the creditor also makes credit decisions based on oral requests, the creditor’s procedures are to accept both oral and written applications.

What it takes to have an application varies from one loan type to another. For example, you need an appraisal and title work for a mortgage loan, but that information is not needed for an unsecured loan.

HMDA/Regulation C

For purposes of HMDA/Regulation C the term “application” generally has the same meaning as in ECOA/Regulation B. One difference, a prequalification is generally considered as an application under Regulation B, but not under Regulation C.

Scenario 1 – Assume a creditor provides a consumer with an application form containing 20 questions about the consumer’s credit history and the collateral value. The consumer submits answers to nine of the questions and informs the creditor that the consumer will contact the creditor the next day with answers to the other 11 questions. Although the consumer provided nine pieces of information, the consumer did not provide a social security number.

  • TRID – The creditor has not yet received an application. A Loan Estimate is not needed at this time.
  • Regulation B – The creditor has not yet received an application. If the application is denied, based on this limited information, an adverse action notice is needed.
  • Regulation C – The creditor has not yet received an application. Reporting of data on the HMDA LAR is not needed at this time.

Scenario 2 – Assume a creditor requires all applicants to submit 20 pieces of information. The consumer submits only six pieces of information and informs the creditor that the consumer will contact the creditor the next day with answers to the other 14 questions. The six pieces of information provided by the consumer were the consumer’s name, income, social security number, property address, estimate of the value of the property, and the mortgage loan amount sought. Even though the creditor requires 14 additional pieces of information to process the consumer’s request for a mortgage loan, the creditor has received an application for the purposes of § 1026.2(a)(3) and therefore must comply with the relevant requirements under § 1026.19.

  • TRID – The creditor has received an application. A Loan Estimate must be provided no later than three days after receiving the application.
  • Regulation B – The creditor has not yet received an application. If the application is denied, based on this limited information, an adverse action notice is needed.
  • Regulation C – The creditor has not yet received an application. Reporting of data on the HMDA LAR is not needed at this time.

We would love to see the CFPB simplify the process of defining “applications.” At present the amount of application information needed to trigger integrated disclosures is worlds apart from the information needed for purposes of Regulations B and C. Maintain the struggle and keep reminding yourself that if this stuff was easy, then anyone could do your job.

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