Loan application of 1.8 million was unconvincingly rejected after 4 weeks

Hello,

today the day has come when I urgently need your collective wisdom:

On February 6th, I submitted a loan application at a large nationwide bank (a mix of a follow-up loan for several construction loans with fixed interest expiring in March & capital procurement for free use) with the following conditions:

Loan amount = 1.8 million EUR
Term = 10 years
Interest rate = 0.8%

The application was made through an independent loan broker. All documents requested by the bank during the application process were submitted on time. At all times since the application was submitted, the broker assured me that I could expect loan approval based on the submitted application documents. The traffic light was green.

Additional info: one of the loans to be repaid has a term until 2025. I want to repay this loan early – I have a corresponding confirmation from the currently financing bank, and this confirmation was also forwarded to the new bank. The wording in this confirmation is:

"We confirm that approval for early repayment of your loan xxx as of 03/20/2022, taking into account a prepayment penalty, is granted.

On March 7, 2022, I was informed by the broker that the loan application was rejected by the bank because the bank cannot refinance contracts with prepayment penalties. We are talking about a prepayment amount of max. 4,000 EUR.

I would have to provide a confirmation from the currently financing bank stating that no prepayment penalties will be incurred upon repayment. In my opinion, there are two simple solutions:

(1) I pay the prepayment penalties in cash and confirm this to the bank – no problem for me
(2) I repay the entire relevant loan (approx. 120,000 EUR) in cash – also possible for me

Regarding (1), the broker says that the bank generally does not mediate contracts where a prepayment penalty applies. Can that be true? Why does this information come only now, practically a month after submitting the application?
But that would only be possible by submitting a new application at the currently valid interest conditions (1,x%, 10 years term). The previous application would be closed due to rejection and no longer accessible under the previous application conditions with an interest rate of 0.8%.

Regarding (2), the broker says the bank would be willing to finance, but here as well only by submitting a new application at the currently valid interest conditions.

My question: is the behavior of the bank industry standard? The rejection of the application seems very arbitrary and contrived to me. What can I do?

Can I demand the bank to reactivate the rejected application if I repay the loan to be paid off early in cash? Or am I completely at the mercy of the bank's arbitrary decisions regarding loan approval or rejection?

The broker says reactivation of the rejected application under the February conditions is not possible. If the latter is the case, then this approach seems like an unfair bait-and-switch offer to me.

This is in contrast to the statement I received today in a direct phone call with a construction loan advisor from the same bank – although he could not review the specific case because the application was made through a broker, he mentioned two solutions:

(1) the previous bank issues a letter stating that no prepayment penalties apply
(2) I take out a forward loan with the new bank for this loan running until 2025

In both cases, he sees no reason why I could not then resolve the problem to receive loan approval under the application conditions.

My broker says this is not possible. What is correct and what should be done now?

My question: is the bank's behavior standard in the industry? The rejection of the application seems very arbitrary and contrived to me. What can I do?

Nothing. As harsh as it sounds, the bank can and is allowed to decide whatever it wants. No matter how arbitrary.

Can I demand the bank to reactivate the rejected application if I repay the loan to be redeemed early from cash funds? Or am I completely at the mercy of the bank's arbitrary decisions regarding loan approvals and rejections?

Once again. You cannot demand anything!

The broker says that reactivating the rejected application under the conditions from February would not be possible.

The bank would also be crazy to offer a condition from early February in mid-March. Why should it do that? It also wants to make some profit. For this scale, for example, you only get daily updated conditions from us. We do not reserve anything.

My broker says that is not possible. What is true and what should I do now?

It always helps to talk to the people from whom you want something. So don’t play "telephone" with the advisor. He only wants to earn commission. Talk to the bank.

The bank would be crazy to offer a condition from early February in mid-March. Why should they do that? They also want to make some profit. For an amount of this size, you only get current conditions from us, for example. We do not reserve.

So far, I have assumed that the interest conditions of the applications remain fixed during the application processing period – that is what several intermediaries told me at the end of January when I was comparing offers. According to their information, banks had partly set deadlines with a date by which an application had to have been received at that time in order to still keep the more favorable conditions. I fully complied with this deadline when submitting the application. As of last Friday, the feedback from the intermediary was: everything is fine, contracts are coming very soon.

If I cannot trust the interest rates at the time of application during the entire processing period, then that means in reverse: in the future, I will always submit at least five parallel applications until the contract is sent, and only then decide on one contract to sign. That really cannot be in the banks' interest in terms of efficiency.

It always helps to talk to the people from whom you want something. So don’t play “telephone game” with the advisor. He only wants to earn commission. Talk to the bank.

I fully agree with that 100%. I have already requested a clarifying conversation with solution seeking between bank, intermediary, and customer. The intermediary says: direct communication bank-customer is not possible.

The bank says: I can contact info@.. in writing with my concern, then I would get a written response. Further direct communication is not planned. I will do that, but this way is now somewhat too time-consuming after nothing has progressed for 4 weeks. The follow-up financing is due on 20.03.2022.

If I can't trust the interest rates at the time of application for the duration of the application processing, then that means, conversely: I will always submit at least 5 parallel applications until the contract is sent, and only then decide on one contract to sign. That can't really be in the banks' interest in terms of efficiency.

That's exactly what you have to do, especially with such long processing times. Maybe not immediately five.

The "green light" from the broker's smart tool only checks about half a dozen parameters. These are not commitments, but rather an invitation to try applying here.

Since you want to have something in hand by 03/20, if I understand you correctly, you now have to prepare new applications, possibly with reference to urgency. Your old conditions are definitely gone.

I agree 100% with this. I have already requested a clarifying conversation with solution-finding between bank-broker-customer. The broker says: direct communication between bank and customer is not possible.

The bank says: I can contact info@.. in writing with my request, then I would receive a written response. Further direct communication is not planned. I will do that, but the process is now somewhat too lengthy, after 4 weeks of no progress. The follow-up financing is due on 03/20/2022.

This is really not productive from bank and broker. A pity.

Until now, I assumed that the interest conditions of the applications remain fixed during the application processing period

For such small financings (normal homebuilder around €300k or similar), the bank usually carries out a flat-rate refinancing. For a sum like yours – which is no longer a small loan – refinancing is always done at the time the contract is signed, for example, with us. This means you can win or lose. But it is always fair.

By the way, I didn’t even know that traffic lights mean anything for these sums, since manual processing is always necessary and things can always change.

mix of a follow-up loan for several construction loans with expiring fixed interest rates in March & capital procurement for free use [...] At every point in time since the application was submitted, the intermediary assured me that I could expect a loan commitment based on the submitted application documents.

Sounds complicated and doesn't sound like a sure thing as your intermediary portrays it. (What is the free capital for?) How about talking personally with the local banks in parallel to your intermediary? With those amounts, you are initially a very welcome and very serious customer. You also get a lot more details and background than through an intermediary. Definitely sensible with those amounts. Please remember: You are the applicant and cannot demand anything. You are asking for an offer from the bank.