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MLO Mentor: ECOA Disclosures | First Tuesday newspaper

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MLO Mentor is an ongoing series covering compliance best practices for Mortgage Loan Originators (MLOs). This article discusses the notice rules and disclosures required under the Equal Credit Opportunity Act (ECOA).

Notification rules

All notifications required under the ECOA must be provided to the lead applicant. [12 CFR §1002.9(f)]

Applications and Candidates

ECOA defines a request as an oral or written request for credit extension. Pre-approvals and inquiries may also be considered requests, depending on the conduct of the lender. If a lender assesses applicant information and denies a request for additional information, pre-approval or investigation may be considered a request that triggers a Notice of Action Taken. [12 CFR §1002.2(f); Official Interpretations of 12 CFR §1002.2(f)-3]

A completed application is an application that contains all the information regularly required to make a credit decision for the loan the applicant is requesting. [12 CFR §1002.2(f)]

An example of an inquiry that is not a request is when a consumer inquires about the terms of a home purchase loan and provides their income and expected down payment, but the credit only explains the loan to value ratio of the lender without making a decision. whether the applicant is eligible for the loan. [Official Interpretations of 12 CFR §1002.2(f)-4]

Notice of action taken

Where an application is made on behalf of an applicant to more than one lender and the applicant expressly accepts a loan offered by one of the lenders, notification of the action taken by one of the other lenders is not not required. If a loan is not offered or the applicant does not expressly accept any of the loans offered, each lender taking adverse action must comply with this section, either directly or through a third party. A notice given by a third party must disclose the identity of each lender on whose behalf the notice is given. [12 CFR §1002.9(g)]

Now, a lender wouldn’t necessarily know that another lender’s loan offer had been accepted. In such cases, prevention is better than cure. In other words: when in doubt, disclose!

Lenders who received less than 150 inquiries in the previous calendar year may give oral rather than written notices. [12 CFR §1002.9(d)]

Incomplete applications

Within 30 days of receiving an incomplete application, a lender must provide the applicant with either:

  • notice of action taken [12 CFR §1002.9(a)(1)(ii)]; Where
  • a notice of incompleteness. [12 CFR §1002.9(c)(2)]

A written notice of incompleteness is required for:

  • include a list of information needed to complete the application;
  • designate a reasonable period of time for the applicant to provide the information; and
  • contain a statement advising the applicant that failure to provide the requested information will result in the rejection of the application. [12 CFR §1002.9(c)(2)]

If the applicant does not respond to the notice of incompleteness within the specified time, the lender has fulfilled its obligations under the ECOA.

If the applicant provides the requested information within the time frame, then the lender must follow the ECOA rules for completed loan applications. [12 CFR §1002.9(c)(2)]

A lender may verbally inform the applicant of the information needed to complete the application. However, if the application remains incomplete after oral notification, then the lender must send either a written notice of action taken or a written notice of incompleteness. [12 CFR §1002.9(c)(3)]

Loan applications withdrawn

Applications withdrawn by the applicant do not require notice. If a lender approves an application and the applicant has not inquired or responded to the application within 30 days of the application, the application is considered withdrawn. [12 CFR §1002.9(e)]

Loan applications completed

After the lender has received a completed loan application, the lender has 30 days to:

  • inform the applicant that the loan is approved;
  • inform the applicant that the loan is refused with the notification of action taken; Where
  • counter-offer the applicant’s loan application. [12 CFR §1002.9(a)(1)(i)]

If the applicant is notified of a counter-offer and does not respond, the lender must provide notice of action taken within 90 days of the counter-offer. [12 CFR §1002.9(a)(1)(iv)]

A notification of action taken must be written and contain:

  • a statement of the measures taken;
  • the name and address of the lender or originator of the loan;
  • a statement identifying the objectives of the ECOA; and
  • the name and address of the federal agency responsible for the lender’s or loan originator’s compliance with the ECOA. [12 CFR §1002.9(a)(2)]

This statement identifying the objectives of the ECOA should be substantially similar to this:

“The federal Equal Credit Opportunity Act prohibits creditors from discriminating against applicants for credit on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant’s income is derived from any public assistance program; or because the applicant has exercised good faith a right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law with respect to this creditor is [name and address as specified by the appropriate agency or agencies listed in appendix A of this part].” [12 CFR §1002.9(b)]

In addition, the notice of action taken must contain:

  • a statement of the specific reasons for the action taken; WHERE
  • a notice stating:
    • that within 60 days of notification from the lender, the applicant may request a statement listing the reasons for the denial and that the lender must deliver the statement within 30 days of the applicant’s request; and
    • the name, address and telephone number of the person from whom the statement of reasons can be obtained. [15 USC §1691(d)(2)]

If the lender or loan originator chooses to provide the specific reasons orally, it must also disclose the applicant’s right to have them confirmed in writing within 30 days of receiving the applicant’s written request for confirmation. [12 CFR § 1002.9(a)(2)]

If the lender or loan originator chooses to provide the specific reasons orally, it must also disclose the applicant’s right to have them confirmed in writing within 30 days of receiving the applicant’s written request for confirmation. [12 CFR § 1002.9(a)(2)]

The specific statement of reasons cannot be a boilerplate statement that the applicant has failed to meet the lender’s internal standards. As the name suggests, reasons should be application-specific, rather than generic. [12 CFR §1002.9(b)(2)]

Next week, we’ll discuss the records retention and discrimination rules under the ECOA.

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