Under the new TRID rules, a lender is required to provide an applicant with the new Loan Estimate, along with other application disclosures, when the lender is in receipt of 6 items from the applicant; the name, address, income, estimate of value, SSN & loan amount.
The lender may not require anything additional, including but not limited to, verification of any information provided. You got the 6, you issue the Loan Estimate. What if the lender wants to provide a consumer with a pre-approval? Is that allowed under the new rules? Yes, but you had better be very careful (Pre-Approvals).
A lender can offer pre-approvals as long as they do not collect the 6 items required of an application. This could get tricky. If a consumer wants to become pre-approved for a loan before they shop for a home then the lender may perform a complete income, assets and credit analysis, including verifications, necessary to issue the pre-approval. However, if this is done to circumvent the required issuance of the disclosures, and to allow the lender to gather additional documentation, you could get into trouble.
To avoid this, a lender may want to create a separate form for a pre-approval request which specifically states it is completed for the sole purpose of the pre-approval and that the consumer has not yet entered into a contract to purchase a home, or is not intending on refinancing their current home. Any approval then issued should clearly spell out that is a Pre-Approval to grant a mortgage once a home is purchased. Be careful, if the consumer has already entered into a contract to purchase a house, your pre-approval may be deemed an application requiring the issuance of the required application disclosures. That’s a violation.
As always, be sure to do things the right way. Don’t try to circumvent the rules. Remember when someone comes to you and their sentence begins, “You know how to get around that…”, you’re in for trouble.
The rules may have changed, and although you need to play different, you still must play within the rules. The risk isn’t worth it. If there is any question, be safe. Issue the required application disclosures. The time and effort will be well worth it in the long run. Otherwise, be sure you clearly document the difference between a pre-approval and a bona fide application.
Do you have systems in place to know when your LOs receive the 6 items for a loan application? How will you ensure the required disclosures are issued timely once you have the 6? How will you differentiate between a bona fide loan application and a pre-approval? Who’s got your 6?
Stay compliant my friends!