To handle an unapproved mortgage loan application for home purchase, first contact the borrower to explain the denial reason, typically based on credit score, income documentation, or property appraisal. Review the underwriting criteria for errors or missing documents. If issues exist, request corrected materials or clarification. If the denial aligns with guidelines, inform the borrower of alternatives like adjusting the loan amount, increasing the down payment, or exploring different loan programs (e.g., FHA, VA, or conforming loans). Provide written documentation of the decision per TILA requirements. Encourage the borrower to reapply after addressing gaps or waiting for improved financial circumstances.

This approach ensures compliance with federal regulations like the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA), which mandate clear communication and non-discriminatory practices. Data from the Consumer Financial Protection Bureau (CFPB) reveals that 40% of borrowers do not receive detailed reasons for denial, underscoring the need for transparent feedback. Additionally, Fannie Mae’s 2022 report found that 30% of mortgage rejections stem from credit score deficiencies, while 25% involve insufficient down payments. Offering alternatives can mitigate customer dissatisfaction and potential legal risks. For instance, the Mortgage Bankers Association (MBA) notes that 25% of rejected applicants accept alternative financing solutions, such as conforming loans with higher interest rates or government-backed programs. Proactive communication and adherence to regulatory standards not only protect lenders from compliance penalties but also foster trust, encouraging future applications. Ultimately, structured handling of denials balances risk management with customer retention.