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Documenting Denied Files

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Hi! It’s Tory Haggerty from Tuscan Club University’s Fair Lending School and welcome to another Fair Lending Short.

I want to talk about documenting denied files.  It’s really easy for a Lender or someone in your loan operations to kind of pencil whip, and get through an adverse action notice and a denied file and get it out the door, because they don’t really understand the importance of it.  

You need to go back to your Lenders and train them on this key process and the importance of it.  You want to train them to spend just as much time documenting a denied file and an adverse action notice as they would on an approved file.  Why?  Because if you ever have to perform a comparative file analysis, those Lenders need to be able to explain the loan decisions that they’ve made.  

That way if an auditor or examiner has to recreate their loan decisions, they can do so because they have well documented files.  In a comparative file analysis, you’re taking data from approved files and denied files and you’re comparing those to find out why one got approved and one got denied.  And it’s often borderline credit worthy individuals that could go either way.  If you don’t take the time to document those denials, a reviewer, and most importantly an examiner cannot recreate the loan decisions, especially six months or a year or two later.

So think of it as covering your butt, and teach your lenders to take a bit of time and do it right the first time.  Create well documented files, pick good and accurate denial reasons, not only because you’re required to, but because you need to be able to clearly explain why the loan file was denied. That way later, you’ll be able to explain in an exam why you made the loan decisions you did, to show that you’re treating everybody fairly.   

Thanks for reading!

 

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