QUESTION
We erroneously canceled a few loans due to an error by our loan processor and poor communication with the loan officer. We sent the applicant the required ECOA notice of action taken, noting the loan was withdrawn by the applicant. At this point, the applicant, as well as our company, would like to move forward with the loan. Is it possible to “resurrect” the initial application or must we require a new application and treat it as a new origination?
ANSWER
The “cleanest” and most preferable approach would be to treat it as a new loan, requiring a new application, disclosures, etc. That being said, the Home Mortgage Disclosure Act [12 CFR Part 1003] contemplates the “resurrection” of a loan application.
In accordance with the Official Commentary, if the applicant asks the creditor to reinstate an application that was denied, withdrawn, or closed for incompleteness in the same calendar year, the creditor may treat that request as a continuation of the earlier transaction.
If you resurrect the loan, you must be careful to ensure that you have no systems issues with your LOS and that correct information is reported. Additionally, you should have a policy addressing company actions to be taken in these scenarios, and consistently abide by the policy.
The relevant regulation and commentary are set forth below.
HMDA 12 CFR 1003.4(a)(1)(i)(E) (Effective date 1/1/2018) (emphasis added)
For an application that was previously reported with a ULI under this part and that results in an origination during the same calendar year that is reported in a subsequent reporting period pursuant to § 1003.5(a)(1)(ii), the financial institution may report the same ULI for the origination that was previously reported for the application.
12 CFR Part 1003, Supplement I to Part 1003—Official Interpretations (Effective date 1/1/2018)
1003.4(a)(1)(i)-4. ULI—reinstated or reconsidered application. A financial institution may not use a ULI previously reported if it reinstates or reconsiders an application that was reported in a prior calendar year. For example, if a financial institution reports a denied application in its annual 2020 data submission, pursuant to §1003.5(a)(1), but then reconsiders the application, resulting in an origination in 2021, the financial institution reports a denied application under the original ULI in its annual 2020 data submission and an origination with a different ULI in its annual 2021 data submission, pursuant to §1003.5(a)(1).
12 CFR Part 1003 Supplement I, Section 1003.4: Compilation of Reportable Data (Effective date 01/01/2019) (emphasis added)
1003.4(a)(1)(i)-4. ULI—reinstated or reconsidered application. A financial institution may, at its option, use a ULI previously reported under this part if, during the same calendar year, an applicant asks the institution to reinstate a counteroffer that the applicant previously did not accept or asks the financial institution to reconsider an application that was previously denied, withdrawn, or closed for incompleteness. For example, if a financial institution reports a denied application in its second-quarter 2020 data submission, pursuant to § 1003.5(a)(1)(ii), but then reconsiders the application, which results in an origination in the third quarter of 2020, the financial institution may report the origination in its third-quarter 2020 data submission using the same ULI that was reported for the denied application in its second-quarter 2020 data submission, so long as the financial institution treats the transaction as a continuation of the application. However, a financial institution may not use a ULI previously reported if it reinstates or reconsiders an application that occurred and was reported in a prior calendar year. For example, if a financial institution reports a denied application in its fourth-quarter 2020 data submission, pursuant to § 1003.5(a)(1)(ii), but then reconsiders the application resulting in an origination in the first quarter of 2021, the financial institution reports a denied application under the original ULI in its fourth-quarter 2020 data submission and an approved application with a different ULI in its first-quarter 2021 data submission, pursuant to § 1003.5(a)(1)(ii).
Joyce Wilkins Pollison, Esq.
Director/Legal & Regulatory Compliance
Lenders Compliance Group
