I have a situation where a borrower applied for a TRID loan on 10/4/2016 (all 6 points), but was denied by the loan officer on 10/6, so the borrower was never given disclosures. However, we have a secondary review process where the LOs manager reviews the decline to either confirm or reverse the decision. In this case, the secondary review didn't happen until 10/12/2016. For HMDA, I report the date of the secondary review as the final action taken.

Do I have an issue with not giving the disclosures to the borrower? The LO denied the loan and communicated the denial to the borrower within 3 days. It was a clear denial (low credit score); it just took the manager a few days to get to the secondary review. From the HMDA data, it will look like we should have disclosures. Do I just document the file with the "real" story?

If the denial was communicated to the borrower, then the "clock" is stopped for compliance. You have 30 days to send the AAN. I would make sure the date you communicated to the applicant is documented. The AAN can be sent later.

I like the AAN forms that have a "denied date" and a date for the actual notice. This makes it clear in the scenario you describe.

In addition to documenting the file - 2 additional items

Have it in your procedures, so the regulators could verify you are following internal guidelines.

BE CONSISTENT!.

If the LO was assured of a denial, and then verbally communicated that to the borrower 2 business days after receiving the app, but the second review did not happen until 5 business days later, would it have been acceptable to document the verbal denial and NOT send the LE? What if the second review overturned the LO's decision?

The question becomes: when was the loan denied. It appears that the LO may only be making a recommendation and the actual denial does not happen until the second review is completed, as the second review can override the LO's decision. You are going to have to decide when the denial actually occurs.

I would not be communicating a denial to an applicant even if there is slight chance that you are going to have to go back say "never mind".

We perform our second review after the denial has gone out. To date, we have never had a reversal, so to speak. But if there is any grey area in the decision, we DO require the lender to document the file and we DO review that documentation to determine if it is viable. The second review committee also performs a full compliance review of the file....the AAN itself, joint intent, length of time between the application date and date of denial, TRID disclosure timing (if applicable), etc.

The risk here obviously is that this is not preventative. You can find problems and attempt to fix them, but if something is wrong, it is wrong and fixing doesn't make that original fact go away. A second review before the denial goes out is always best. But of course, that is not necessariy your call.

I agree, Kathleen, but a difficult feat from a timing perspective. We do, occasionally, require a lender to resend the AAN if there is something seriously wrong with it. A pre-mailing review would guard against that......but, not my call to make. Over time, drawing each lender's attention to mistakes has cut those mistakes to nearly zero.

The value of having a manager level person review the denials pre-issuance vs the lender is the manager has a broader perspective and will have seen the other transactions going through, allowing them to make comparisons to see if such a transaction could/should be approved/counteroffered.

Again, I realize you can't demand a change!

Looking at it another way, would another (e.g. more experienced) loan officer make the loan? When regulators do a comparative file review, they are looking at decisions on the BANK level, not LO level.

Circling back to the original question- If the denial is reviewed after the 3 day period to issue the early docs on a TRID loan, should the LO that made the first denial have sent the early disclosures on the off chance the second reviewer chose to approve the loan?

Like Rlcarey stated: "The question becomes: when was the loan denied. It appears that the LO may only be making a recommendation and the actual denial does not happen until the second review is completed, "

It might be a good idea to go ahead and issue your LE and other early docs since the loan could be approved during the second review. Issuing them is not a commitment to lend, and it would be prudent to avoid the TRID issues

Back to the original scenario, this situation was a clear denial. Credit score was in the 500s, below the minimum score for any product we offer. The second review is more of a formality in these situations, just so we can have a consistent process where all denials are reviewed.

As far as HMDA reporting goes, does anyone see an issue with reporting the date of the secondary review as the action taken date?

Pick one:

enter the date when the final action was taken (e.g., the application was denied or the file was closed for incompleteness) or when the notice of the action was sent to the applicant.

However, I'm not sure how the action date can be later than the AAN being sent.

I agree. It is hard to say that the action date is "post" the actual action (the denial). I would find that odd in any case, more so here.

If an AAN was sent, I can't see going later than that date.