Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video covers the disclosures advising the borrower of the action the lender has taken on the borrower’s mortgage application and the lender’s reasons for the actions, as mandated by the federal Equal Credit Opportunity Act (ECOA). For more information, see Part 2 in next week’s newsletter.

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An application from a borrower

A mortgage lender after receiving a borrower’s completed application for a mortgage makes specific periodic disclosures to the primary borrower applicant. These disclosures advise the borrower of the action the lender has taken on the application and the lender’s reasons for the actions, all mandated by the federal Equal Credit Opportunity Act (ECOA).  [12 CFR §1002.9(f)]

An application received by a lender from a borrower seeking a mortgage includes both oral and written requests. Depending solely on the lender’s conduct on a borrower inquiry into a mortgage origination, the lender’s preapproval discussions may constitute a completed application which kicks in mandatory disclosure notices from the lender.

Conditions establishing a completed application exist when:

  • sufficient credit information regularly required to make a decision is received by the lender to approve, disapprove or counteroffer the requested mortgage sought by the borrower; and
  • the lender communicates their decision to the consumer. [12 CFR §1002.2(f)]

A borrower’s inquiry does not constitute a completed application when:

  • the borrower asks about the lender’s terms for a purchase-assist home mortgage and provides the amounts of their income and down payment;
  • the lender limits discussions to explaining the lender’s basic loan terms, such as interest rates, loan-to-value (LTV) ratio, and debt-to-income (DTI) ratio; and
  • the lender communicates no decision on the borrower’s qualification for a home mortgage. [Official Interpretations of 12 CFR §1002.2(f)-4]

Consider a lender who evaluates information about the borrower and communicates to the borrower whether they qualify for a mortgage loan. Here, the lender’s preapproval procedure includes communication of approval or denial constitutes a completed application triggering the lender’s obligation to deliver a mandated notice of action taken to the borrower.

Disclosures in a “notice of action taken”

Borrowers often submit applications for a home mortgage loan to more than one lender. On the borrower’s review of the offers of lenders under these applications, the borrower in writing accepts one of the lender’s offers to originate a mortgage. Here, a notice of action taken is not required by any of the other lenders.

However, when a lender does not make an offer to lend to the borrower or the borrower is not known to the lender to have in writing accepted another lender’s offer to originate the mortgage, each lender acting on the borrower’s application must deliver a notice of action taken to the borrower. When a notice is delivered by a third party, they are to disclose the identity of each lender on whose behalf the notice is given. [12 CFR §1002.9(g)]

Mortgage lenders who received fewer than 150 applications during the preceding calendar year have the option to give an oral notification of action taken rather than a written notice. [12 CFR §1002.9(d)]