What must a lender do if a borrower’s mortgage application is denied?

When a lender denies a borrower's mortgage application, they are required by the Equal Credit Opportunity Act (ECOA) to provide a written explanation that includes the reasons for the denial. This requirement is in place to ensure transparency and to help borrowers understand why their application was not approved. The written notice must detail the specific reasons, which may include insufficient credit history, high debt-to-income ratio, or issues with employment verification, among others.

This written communication is crucial as it allows borrowers to take corrective actions or seek clarification if they believe the denial was unjustified. It also helps promote fair lending practices by ensuring that lenders provide clear and specific feedback to borrowers. Therefore, providing a written explanation ensures that the lender complies with regulatory requirements and supports the borrower’s ability to understand and potentially rectify the issues that led to the denial.