TILA, TRID, and HMDA: Low appraisal, counteroffer and Loan Estimate issues

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Question:

What are lenders doing when an appraisal comes in low, and a counter-offer is made to the customer? Since we are mandated to issue a new LoanEstimate within 3 days; it’s a challenge for our loan officers to get their customers to decide in 3 days whether they want to proceed with an option such as PMI, secondary financing, lower amount etc.How are other lenders handling this?

Answer:

This is a tough issue, partly because of the timing rules and partly because there is more than one regulation involved. ECOA and Regulation B set rules for the notifications you must provide the applicant with respect to any changes to the application request. Then there are the TRID disclosure content and timing requirements for a counteroffer. Ultimately, depending on how you report changed applications,HMDA may also become a consideration.

Let’s start with ECOA. When the appraised value does not support the loan request, you may either deny the application or issue a counteroffer. The counteroffer process is the best way to keep working with the customer. So, you must provide a notice to the customer that makes a counteroffer and explains the decision as well as including the ECOA Notice of Rights. Technically, you have 30 days to get this out but if the Loan Originator wants to keep the application moving, he or she should get this notice out quickly. Also, the fact that there is a formal notification process does not mean that the LO cannot also contact the customer. In fact, a smart LO would be on the phone immediately to discuss the problem and possible solutions with the customer.

Note, however, that in order to make a counteroffer you need to have new loan terms or conditions ready.ECOA would allow the counteroffer to include several options, such as PMI or lowing the loan amount. If this is to be treated as the same loan application, you would have only three business days to get out the notice, even though ECOA allows 30.

Making a counteroffer would trigger the TRID LE disclosure which must be sent to the borrower within three business days. Whether this is changed circumstances or a new loan application, the time limit is three business days. The dilemma here is that there are several options for the applicant and only three days to provide a new LE. One way to deal with this would be to treat each option as a new loan product and provide more than one LE, each showing a particular option, such as the cost of PMI, changes in payments, or any change in rate or terms. The applicant would then have ten days to decide between the options. Much more work for the LO but nice for the applicant.

Alternatively, you could deny the application but include suggestions the applicant might want to consider for another application. That way, you dodge the TRID LE disclosure requirement and give the borrower more time. It is, of course, a bit less friendly.

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