Yes, this is yet another discussion on TRID. (Sorry.)
This one focuses on the concept of pre-approvals. What type of pre-approval will lenders be able to offer consumers and real estate agents? And when can a lender verify a borrower’s income in order to provide a more accurate pre-approval? Spoiler alert — the answer may be “We’re not sure.”
Let’s start with what most people agree with.
The Consumer Financial Protection Bureau (CFPB) has made some aspects of TRID crystal clear. When we have 6 specific pieces of information (Name, Social Security Number, Estimated Property Value, Loan Amount, Income and Property Address), we officially have a loan application. That means the 3-day Loan Estimate (LE) clock is ticking. So far, so good.
We also know that no fees can be charged to the borrower (other than a reasonable fee for obtaining a credit report) until the borrower receives the LE and indicates a desire to proceed. This is also pretty clear.
Additionally, the borrower cannot be required to provide any documentation verifying income related to the application prior to issuing the LE. Clear? Yes.
And yet, TRID is not clear. At least not when it comes to pre-approvals.
If the borrower applies for a pre-approval and does not provide a property address, we do not have one of the 6 pieces of information that trigger an LE. That means no 3-day time clock is ticking.
So, could a lender in this instance require documentation to verify income in order to issue a pre-approval? Can pre-approvals be considered separate from the loan application and not part of the TRID rules? Or is a pre-approval “related to the application,” meaning lenders would not be able to require documentation prior to issuing an LE?
This is not a clear-cut issue. We have discussed it with several lenders and there are varying opinions on how pre-approvals will be handled moving forward. I am not a lawyer and didn’t stay at a Holiday Inn last night, so I am not going to offer legal advice on any of these approaches. However, here are some of the different strategies I’ve been hearing.
One school of thought is, “Look, I don’t have an application without a property address, so this is not a TRID issue. We will require pay stubs if the borrower wants a pre-approval.”
Other lenders don’t require verification for pre-approvals anyway, so shrug. (This seems more like a prequalification than a pre-approval, but perhaps more lenders will adopt this strategy after October 1.)
There are also those who think, “Well, we can’t require verification, but there’s nothing stopping a borrower from volunteering the information.” The CFPB even made this point in a webinar I recently attended. (Though they also quickly added that a creditor who explicitly or implicitly requires verification under the veil of the borrower volunteering it would be violating the law.) Which brings me to one of the better, or at least safer, approaches I’ve heard recently: Some lenders have said they ask borrowers to pick between an actual pre-approval — meaning the borrower must provide documentation — and an unverified prequalification. The borrower is free to pick the one they prefer and sign that they are volunteering to provide any documentation.
The question remains: What is approved for pre-approvals? And my question for you is:
How are you doing pre-approvals come October 3? Share your thoughts below.Tags: CFPB, Housing Market, Loan Origination, Mortgage Industry, Pre-Approval, Real Estate, TILA-RESPA, Top Content, TRID