Application vs. Inquiry
By Steve Doty
The regulatory world can be daunting at times. With so many "if(s), and(s), but(s) or contingent upon(s)", it's easy to see how lending personnel can become overwhelmed at times. Take for instance when they sit down with an inquiring loan customer and travel down the path towards an "application". During this moment, numerous requirements from ECOA, RESPA, maybe even FCRA begin to emerge. Oh, wait! Let's not forget about HMDA. Having so many regulations to comply with, lenders find themselves battling the age old question "Is this an inquiry or an application?"
Take ECOA, for example. The Commentary to §202.2(f) #3 states, A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under Section 202.9. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks.
This make is very clear that when a lender verbally disqualifies a potential borrower, even on a legitimate underwriting basis, the lender, according to Regulation B, is treating an inquiry as an application and must send an adverse action notice.
RESPA, on the other hand, states that early disclosures are not triggered on a prequalification request until a property is identified.
To help alleviate the grayness and allow you to rein in the possibilities of a "snowballing" violation, we compiled a series of real life scenarios in our November newsletter that often give lenders a difficult time. You should check it out, you may be surprised.