A lot of factors need to be clearly understood regarding the application, and certainly in just considering Regulation B, you need to know the requirements. Definition of an application, what you do before you have an application, and what you do after you have an application all matter. Other laws and regulations have different definitions of an application, so the waters can get murky without appropriate knowledge and training.
According to Regulation B, an application is an oral or written request for an extension of credit that is made in accordance with a creditor’s procedures used for the type of credit requested. Consumers will often inquire about loan terms. When is an inquiry not an application? An inquiry is not an application when:
A consumer calls to ask about loan terms and an employee explains the creditor’s basic loan terms, such as interest rates, loan-to-value ratio, and debt-to-income ratio.
A consumer asks about terms for a loan to purchase a home and tells the loan officer her income and intended downpayment, but the loan officer only explains the creditor’s loan-to-value ratio policy and other basic lending policies, without telling the consumer whether she qualifies for the loan.
A consumer calls to ask about terms for a loan to purchase vacant land and states his income and the sales price of the property to be financed, and asks whether he qualifies for a loan; the employee responds by describing the general lending policies, explaining that he would need to look at all of the consumer’s qualifications before making a decision, and offering to send an application form to the consumer.
Here’s an example of an application: A consumer asks you, the mortgage lender, to “preapprove” her for a loan to finance a home purchase and you review the request under a program in which your institution, after a comprehensive analysis of her creditworthiness, you issue 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 your institution ordinarily attaches to a traditional application, such as certification of a clear termite inspection for a home purchase loan.
It’s also important to know the meaning of a completed application because notification requirements hinge on this. A completed application is an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested. This may include, but is 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. As a lender, you need to exercise reasonable diligence in obtaining such information. For example, you should request information from third parties, such as a credit report, promptly after receiving the application. If additional information is needed from the applicant, such as an address or a telephone number to verify employment, you should contact the applicant promptly. Continue to grow in your compliance career by gaining knowledge, experience what you’re learning, and receive coaching or mentoring. One regulation at a time.
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The OCC recently issued Bulletin 2019-43 to remind banks that engage appraisal management companies (AMCs) of the new registration requirement for AMCs that became effective on August 10, 2019. Under this requirement, AMCs must register with the state or states in which they do business and must be subject to state supervision. Federal law bars AMCs from providing appraisal management services to financial institutions for consumer credit transactions secured by a consumer’s principal dwelling that are federally related transactions if the AMCs are not registered as required. The bulletin discusses considerations for banks with regard to confirming AMC registration as part of sound third-party risk management and suggests alternatives that banks can use when no registered AMCs are available. The OCC’s rules on banks’ use of AMCs can be found in 12 CFR 34, subpart H. The same requirements are included in the Federal Reserve Board’s Regulation H, subpart E, and the FDIC’s requirements are found in 12 CFR 323 subpart B.
