The Appraisal Disclosure on quickly denied loans?
ECOA (aka Reg. B) requires us to disclose to mortgage borrowers that they have the right to receive any appraisal or valuation that we prepare after they apply for a loan. But when TRID rolled around, the Loan Estimate absorbed that disclosure, making it unnecessary to disclose a separate appraisal disclosure. (See page 3 of the LE, "We may order an appraisal to determine the property's value ... etc., etc.")
Sounds easy enough. But one unanswered question is what to do when we deny a loan before we ever disclose a Loan Estimate? Do we need to remember to send a separate appraisal disclosure ("do we even still have a copy anymore?") Or do we even need to send the disclosure at all? After all, setting up the system to safeguard against this rare scenario seems difficult.
Note: We're just talking about the appraisal disclosure. No matter what decision we make there, we're always going to provide the borrower with a copy of any appraisal or valuation we've developed in this short period of time. Seems impossible to have an appraisal already, but maybe we've run an AVM (automated valuation method).
Answer?
Well, there's a conservative approach and a (what word do you use for the opposite of conservative) approach. I think the conservative approach is safer and probably your best bet. But below I'll explain why I think you're on solid ground going the other route.
Conservative (recommended) Approach
Provide the ECOA Appraisal Notice as a separate disclosure whenever you deny a loan before getting a chance to send a Loan Estimate. You're not going to get into trouble going this way, but you might find it a pain in the neck to comply with. It seems a majority of the industry is adopting this approach, according to my own informal polls and some solid internet browsing.
The rationale here is simple: ECOA 1002.14(a)(2) says:
For applications subject to paragraph (a)(1) of this section, a creditor shall mail or deliver to an applicant, not later than the third business day after the creditor receives an application for credit that is to be secured by a first lien on a dwelling, a notice in writing of the applicant's right to receive a copy of all written appraisals developed in connection with the application.
Other Approach (the one I think is actually correct)
While I understand the conservative approach is popular, I myself don't think a lender actually needs to provide the separate appraisal notice when it denies the loan without providing the Loan Estimate. I know, I know - the borrower needs more paper always and forever for infinity and beyond - but hear me out.
I think the written language of the ECOA supports this interpretation better than the other way. Let me break it down like this:
Rule 1002.14(a)(1) - requires us to provide copies of appraisals, if any.
Rule 1002.14(a)(2) - requires us to disclose the Appraisal Notice.
Rule 1002.14(a)(4) - says that (a)(1) still applies even when the application is denied. In other words, we still have to provide a copy of any appraisal generated. This does not say that (a)(2) still applies, therefore implying that when a loan is denied before a Loan Estimate is provided, the Appraisal Notice requirement does not apply.
I assume the people who wrote this Rule were intelligent, and that everything is included for a reason. Therefore, I assume if they specifically said (a)(1) still applies when the loan is denied, that they would also have said (a)(2) still applies. Otherwise, there would have been no reason to include this language.
Conclusion
So you probably want to follow the conservative approach. But keep the counter-argument in your back pocket in case someone ever tries to penalize you for mistakes with this scenario. You can say "Well Ben said that it's not even required."
In Other News
If President Trump fires Director Cordray, could he keep his position as Director while fighting removal? One lawyer's opinion is that he could.
The MBA reports 2% growth in December purchase applications year over year.
The MMBA's annual dinner was pretty fun. Governor Baker showed up (and not by video-conference) with meaningful comments to share. We watched videos and drank wine handed out by a law firm sponsor. Not a bad way to kick off 2017 - looking forward to seeing what the MMBA can do for Massachusetts mortgage lenders this year.
Wish I'd stumbled across this sooner, but just noticed the BBJ's awards for most charitable Massachusetts-based companies. Eighty-five companies that donated $100,000 or more made the list. You know what was really cool? It was to see how many companies in our community made the list!
Check it out (and I'm sorry if I forgot someone) - Bank of America, Baystate Financial, Berkshire Bank, Blue Hills Bank, Boston Private, Cambridge Savings Bank, Century Bank, Citizens Bank, East Boston Savings Bank, East Cambridge Savings Bank, Eastern Bank, Easthampton Savings Bank, Enterprise Bank, Fiduciary Trust Co., HarborOne Bank, Middlesex Savings Bank, Northern Trust, People's United Bank, PeoplesBank, PwC, Rockland Trust, Santander Bank, State Street, TD Bank, Webster Bank, and Wells Fargo.
That's 26 out of 85!
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