A mortgage loan applicant has not signed the intent to proceed document that we provided with the early loan disclosures. Our policy and procedures state that we will not order an appraisal or obtain other documentation until we receive the signed intent to proceed. How should we proceed? Should we provide an adverse action notice?

Regulation B requires you to provide either a notice of incompleteness or an adverse action notice (a “denial for incompleteness”).

Because the applicant has not provided a signed intent to proceed, which is required by your policy and procedures, we believe that you should treat the application as incomplete for Regulation B purposes (a different definition of application applies under Regulation Z for purposes of the Loan Estimate requirements). Regulation B defines a completed application as “an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested . . . .” In this situation, you do not have a completed application because the borrower has not provided a signed intent to proceed, which is a document that you “regularly obtain,” nor has the borrower provided tax returns, deposit account information, an appraisal, or the many other documents necessary for the underwriting process.

Regulation B provides two alternatives for responding to an incomplete application. One option is to provide a notice of incompleteness, either orally or by providing a written notice “specifying the information needed, designating a reasonable period of time for the applicant to provide the information, and informing the applicant that the failure to provide the information requested will result in no further consideration being given to the application.” The second option is to provide an adverse action notice for a denial due to incompleteness. If thirty days already have passed since you received the incomplete application, we recommend proceeding under the second option.

For resources related to our guidance, please see:

Regulation B, 12 CFR 1002.2(f) (“. . . A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information.”)

Regulation B, 12 CFR 1002.9(a)(1)(ii) (“A creditor shall notify an applicant of action taken within . . . (ii) 30 days after taking an adverse action on an incomplete application, unless notice is provided in accordance with paragraph (c) of this section.”)

Official Interpretations, 12 CFR 1002, Paragraph 9(a)(1), Comment 3 (“Incomplete Application — Denial for Incompleteness. When an application is incomplete regarding information that the applicant can provide and the creditor lacks sufficient data for a credit decision, the creditor may deny the application giving as the reason for denial that the application is incomplete. The creditor has the option, alternatively, of providing a notice of incompleteness under § 1002.9(c).”)

Regulation B, 12 CFR 1002.9(c)(1) (“Incomplete applications. (1) Notice alternatives. Within 30 days after receiving an application that is incomplete regarding matters that an applicant can complete, the creditor shall notify the applicant either: (i) Of action taken, in accordance with paragraph (a) of this section; or (ii) Of the incompleteness, in accordance with paragraph (c)(2) of this section.”)

Regulation B, 12 CFR 1002.9(c)(2) (“(2) Notice of incompleteness. If additional information is needed from an applicant, the creditor shall send a written notice to the applicant specifying the information needed, designating a reasonable period of time for the applicant to provide the information, and informing the applicant that failure to provide the information requested will result in no further consideration being given to the application. The creditor shall have no further obligation under this section if the applicant fails to respond within the designated time period. If the applicant supplies the requested information within the designated time period, the creditor shall take action on the application and notify the applicant in accordance with paragraph (a) of this section.”)

Regulation B, 12 CFR 1002.9(c)(3) (“Oral request for information. At its option, a creditor may inform the applicant orally of the need for additional information. If the application remains incomplete the creditor shall send a notice in accordance with paragraph (c)(1) of this section.”)