Sooo I have a loan officer who is giving me his loan offering after 30 days since we receive a customer's app for HELOC. I asked him to give me his loan offering within 30 days because that is when we have to make our credit decisions by. The reason he is giving me is that appraisals are taking forever and he can't give me his offering until the appraisals come. But I thought the approving a loan is based on the ability to payback not on the appraised value? I feel like he should know how much he could borrow based on the income information he gets from his customers and give the loan offering, without waiting until he gets the appraisal and decide how much the borrowers can get based on the appraisal value? I guess my question is:
Is it okay to document "appraisal took longer and couldn't approve within 30 days" on the loan file?

Thanks,

Is it okay to document "appraisal took longer and couldn't approve within 30 days" on the loan file?
I don't think so. This is a common issue and why even seasoned loan officers need application training. The Commentary to §1002.9(a)(1)#1 states:
Timing of notice—when an application is complete. Once a creditor has obtained all the information it normally considers in making a credit decision, the application is complete and the creditor has 30 days in which to notify the applicant of the credit decision.

The LO could argue they don't have a complete application because the LO didn't have the appraisal. Therefore, the 30 day clock didn't start.

I'm in the camp that verifications are not part of an application. They are prudent and necessary, but not regulatory requirements. IOW, once the unverified info is provided, you have a complete application and the 30 day clock starts.

In my experience, lenders don't understand that approving a loan based solely on information found on the loan application is not a final approval. Once verification information and the appraisal comes in, and it doesn't measure up, a denial can then be provided. And if the denial is more than 30 days subsequent to the application date, that's OK. Because within 30 days of application date, the lender DID make a decision (a conditional approval) and notified the applicant of the decision (which does not have to be in writing).

"I'm in the camp that verifications are not part of an application. They are prudent and necessary, but not regulatory requirements. IOW, once the unverified info is provided, you have a complete application and the 30 day clock starts."

That is the part I find confusing. Based on the application and credit report, can you tell the customer, if everything on your application checks out, you have the loan? I've been under the opinion that the completed application clock starts when you have the information to make the decision, the clock, being a rolling clock.

The commentary to "completed application" even alludes to the creditor's requirements. If the creditor needs an appraisal to value the collateral, it appears that the reg allows the 30 day timeframe to tart when the appraisal is received, etc.

OSC 6. Completed application—diligence requirement. The regulation defines a completed application in terms that give a creditor the latitude to establish its own information requirements. Nevertheless, the creditor must act with reasonable diligence to collect information needed to complete the application. For example, the creditor 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, the creditor should contact the applicant promptly. (But see comment 9(a)(1)–3, which discusses the creditor's option to deny an application on the basis of incompleteness.)

Thanks David

I can't disagree with you Rocky and you present the right logic & regulatory citations to support this side of the argument. I can defend your position and we have a few clients that pick this position. I'm going to call this the "aggressive" position. The "conservative" approach is to make a decision based on unverified information. Something like, “If everything checks out, I think we can make this loan” once you have all information for an application (but unverified).

This is a complicated topic, but I'll list a few of the pro's and con's of the 2 positions:

"Conservative" approach:
Pro's: 1) If you do communicate an approval/denial you’ve stopped the 30 day clock. If a verification item causes the lender to change their mind (i.e. income isn’t what the applicant stated or the appraisal doesn’t support the collateral value), then you have a “changed circumstance”. However, you can deny the request or counter-offer. The 30 day clock starts again because you have new information that changed your decision.
2) It encourages applicants to proceed (I believe this is the intent of Regulation B).

Con’s – Some think this gives the applicant false hope or could be misleading. I really don't think that being honest with an applicant is ever misleading.

"Aggressive" Approach:
Pro’s – The 30 day clock doesn’t start until everything is verified.

Con's:
1) Many LO's don't understand all of the finer details and/or don't follow it. Bottom line is it causes confusion.
2) LO's need to send a Notice of Incompleteness for items they need and track the process and timing closely. But appraisals and title work (the things that typically take a long time) are not items the applicant can provide. Thus, the NOI doesn't make sense.
3) LO's can't say whether the application is approved or not - which is discouraging to applicants, in my opinion. Many applications are a slam dunk (approved or denied). Yet banks with this policy won't let the LO communicate a common sense decision until everything is verified. I believe this is poor customer service, a waste of time and money and a waste of everyone's time.
4) What if the LO does tell the customer they appear to be approved (which is common because they don't like the policy of not telling their customers if they are approved or not)?
5) Applicants are never told where they stand (approved or denied).
6) Examiners will review this process much more closely to ensure you are starting the 30 day clock correctly.

Now you could say your bank does allow a decision to be made/communicated before the bank has a complete application, but I find that most banks don't.

Again, this is a complicated topic and I do believe there's latitude given to creditors to say they don't have a complete application. However, if you have an application but not a complete application (which is true in many cases), you still have to get joint intent documentation and can certainly have a HMDA and TRID application, as applicable. The only thing we're talking about is when the 30 day clock starts. So what's the benefit of trying to defend this position?