Sunday, October 22, 2017

Loan Denials and Withdrawals – Tips to Sure Up your Process

Posted by Tom July 30, 2012 1:14pm

Photo Credit: linusb4

In the past few months, my team and I have noted an increase in our recommendations to our clients for monitoring and documenting Withdrawn and Denied loans. While there has not been as huge an upswing in scrutiny by regulatory agencies in this area, it does seem that certain events and changes that have occurred have not been adapted by institutions, causing potential violations where none need be. The following are a few of the more common things we’ve seen, and “fixes” to help your institution be better prepared:

  • Ensure your adverse action form is up to date, as required by y § 1100F of the Dodd-Frank Act. These amendments The FCRA amendments were effective July 21, 2011. These primarily revolve around new credit score disclosure requirements. In addition, make sure that the address of the regulatory body in question is up to date. With all the merging and creation of new agencies as of late, there is a good chance that this may need to be amended.
  • Application dates seem to be a bugbear to trip up banks for the “30 day clock” (the timeframe in which a bank must make a decision on a loan for a consumer as defined by Regulation B). In order to make certain that loans are not slipping through the cracks and not being approved or denied timely, banks should:
  1. Clearly define in process or policy what the bank considers a completed application; this way, there are no gray areas as to what is and what isn’t considered an application by bank standards.
  2. Make sure that once this information is received, the application is DATE STAMPED to document that the Reg. B clock started then.  By doing this, you’ve outlined your parameters, and set a definitive start point for your process.
  • HMDA monitoring also seems to be increasingly an issue for declined and withdrawn loans, not so much with the actual tracking of the loan, but with the information included on the LAR. Those that are responsible for recording/reviewing HMDA LAR input should be well versed on the (current!!) HMDA requirements for information on declined /withdrawn loans; as these change frequently, training for these employees should be as current. That way the LAR can be submitted with less avoidable errors, and subsequent unneeded revisions.
  • Finally, each loan file should be able to sufficiently document the reason for the denial or withdrawal.  This is trickier from the withdrawal standpoint, because sometimes a borrower just walks away from a loan and never bothers to convey their lack of interest to a loan officer.  In those instances, a strong communication log detailing efforts to contact the borrower and the  lack of response are key to justifying the path the bank took on the loan. For denials, the documentation in the file should match the reason on the Adverse Action Notice, and be reviewed by two individuals prior to the notice being sent. Occasionally, we have seen loans denied for one condition, and the Adverse Action Notice being sent with completely different or unclear information being sent to the borrower.

By periodically checking on  the “back end “ of the loan process, you are Safeguarding yourself against unnecessary  Regulation B and HMDA violations that  are never  welcome, especially in this environment where anything has the potential to invite additional scrutiny to your lending process.  Hopefully, these tips will be of use to keep the entirety of your lending activity  violation free.

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