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.
Vance Edwards, CMB - MGIC Marketing Program Director
Vance Edwards joined MGIC in 1999 and currently serves as MGIC's Marketing Program Director. Among Vance’s responsibilities is heading up MGIC’s Marketing Promotions Team which oversees MGIC sales training efforts, marketing of MGIC programs and co-branding efforts with MGIC customers.
In addition, Vance leads MGIC initiatives with Realtors and consumers, especially first-time homebuyers. He has spoken numerous times to Realtors® and loan originator audiences on topics including: first-time homebuyers, QM, economic overview, mortgage industry, and sales skills.
Vance lives in Menomonee Falls, Wisconsin with his wife Carrie and children Hailey and Trevan.
Vance is a certified FICO professional and earned a Certified Mortgage Banker ("CMB") designation from the MBA.
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There are about 5 differing regulations with various rules and conditions associated with an application. Under Reg B we have a obligation to issue adverse action notices or request for additional information on a credit application file if a property address is specific or not (No LE required until there is an address) , and HMDA Application Register with date and outcome always – even when no address.
(Never on a pre-qualification which is based on undocumented heresay and not always supportable)
Having the customer choose a verified credit pre-approval rather than a unverified Pre-qualification has been our normal process to determine if it is voluntary.
I would hope CFPB would remove the “address of the property” as one of the items necessary to be considered an application and then we lenders would issue a Loan Estimate to all consumers who
we provided a Pre-Qualification or Pre-Approval.
To satisfy our lender’s comfort level, we would require consumers provide us with copies of YTD pay stubs & copies of 2 yr.Tax returns. I personally feel a consumer is entitled to an estimate of charges when requesting a Pre-Qualification or Pre-Approval. Later on, when they purchase a home the lender would issue a “Revised” Loan Estimate.
So TRID is in effect now, any new information on how pre approvals are being viewed? I am hoping that no property address means no TRID issue and therefore a requiring income would be ok? Any experiences?
Hi Karla
I still have yet to see a clear cut answer from CFPB however as we moved closer to TRID, I heard more and more lenders tell me they were viewing it as if they did not have a property address they did not have an application and therefore able to request information in order to issue a preapproval.
Now that Oct 3 has come and gone and we are more than a month out, I have not heard anyone tell me they are treating it differently.
I would love to hear how others are dealing with TRID.
-Vance
Since the Real Estate agent, in 99% of the pre-qualification/approval cases, are the ones that “require” a letter from LO’s to show a borrower property, I don’t see an issue at the pre-TRID process with asking the borrower, “if they would” send me a paystub and W-2 or the last tax return, if self employed. If they say no, then I will have to qualify to the agent that the potential buyer did not want to provide proof of income and give them a pre-qual, not pre-approval. Also, communication with other LO’s in my area about how they are handling this process as well as belonging to my State and National Associations is a must.
In the UK the mortgage approval system went through a change where everyone had to carry out a mortgage market review. MMR. Pre approval is the only way to help Homebuyers and Investors ensure they are making informed decisions on how much debt they can realistically pay back.