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                              FRB Guidance on Modification Adverse Action Notices



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The Federal Reserve Board (FRB) has determined that lenders who deny a request to modify a mortgage often are not required to send the borrowers adverse action notices under Regulation B, the implementing regulation of the Equal Credit Opportunity Act (ECOA) [12 CFR 205)].

The FRB has outlined a four-step analysis that should be used to determine whether the notice is required, indicating as well that the same analytical process is used in the Treasury Department's Making Home Affordable Modification Program  (HAMP) and for modification requests outside the program.

Whether the notice is required usually will depend on whether the borrower has defaulted on the mortgage.


Whether an adverse action notice is required when a loan modification is denied depends on the answers to four questions:

(1) Would there be an extension of credit?

"Credit" includes the right to defer payment and a mortgage loan modification usually will include deferring payment of a debt by actions such as reducing the interest rate or extending the loan term.

(2) Was there an application?

In general, if a borrower has submitted enough information for the lender to evaluate the modification request, there will have been an application.

(3) Was there an adverse action on the application?

An "adverse action" is a refusal to grant credit in substantially the amount requested or on substantially the terms requested in an application. A denial of a modification request likely would be an adverse action.

(4) Is the borrower delinquent or in default?

Under Regulation B, a creditor is not required to give an adverse action notice to a borrower whose account is delinquent or in default. This applies to mortgage borrowers and, in such a case, no notice would be needed. However, if the borrower is not yet delinquent or in default, an adverse action notice is required.

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Mortgage Loan Modifications and Regulation B's Adverse Action Requirement (FRB - CA 09-13)
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