Twenty years ago, the summer Olympics were held in Atlanta, Prince Charles and Diana, the Duchess of Wales, were divorced, Ebay made its first deal and the first-ever cloning of a mammal – Dolly, the sheep – took place. It also was the last time Fannie Mae and Freddie Mac made any substantive changes to their standard uniform residential loan application, known far and wide today as simply the “1003.”
Now, though, that last little item will have to be scraped from the history books, because the two government sponsored enterprises, under the supervision of their regulator, the Federal Housing Finance Agency, are redoing the URLA. The latest revision will go into effect Jan. 1,2018, but the agencies put forth the changes in late August so lenders have enough lead time to be ready New Year’s Day roughly 16 months from now.
Lenders will not be permitted to use the new form until January 1, 2018, to coincide with the new expanded HMDA demographic data collection, which takes effect the same day. “Since the redesigned URLA includes these additional data fields, the form may not be used until January 1, 2018,” said Fannie Mae spokesman Pete Bakel. “Lenders who are ready to do so may (but are not required to) begin using the redesigned URLA on that date.”
Noting that lenders are facing a number of overlapping regulatory changes, Bakel also said they will not be required to use the new URLA “until sometime thereafter.” The new form will also be used for loans insured by the Federal Housing Administration, guaranteed by the Veterans Administration and underwritten by the Department of Agriculture’s Rural Housing Service.
The new, redesigned and “consumer friendly” URLA is said to be the result of “extensive collaboration” with lenders, federal regulators, technology providers, mortgage insurers, trade associations, housing advocates, borrower groups and other industry participants – Whew! That’s a mouthful. And it is part of a larger joint initiative by the GSEs, under the FHFA’s direction, to standardize single-family mortgage data.
Although the new document is being published now to give lenders and their technology providers ample time to incorporate it into their business models, it may not reach the deadline in its current form. According to FHFA Director Mel Watt, it must still go through a “safe harbor” review by the Consumer Financial Protection Bureau, which could require a nip here and a tuck there.
“We won’t know what the true impact of the new form will be until it is finalized and goes into effect,” says Mike Vitali, senior vice president and chief compliance officer at LoanLogics, a Trevose, Pa., technology provider. “However, it’s safe to say it will create more work for lenders.”
As it stands now, the revised residential loan application, which went through “extensive usability testing” with borrowers and lenders, is said to be easier to read, technology enabled and more consumer-friendly. Maybe so, but at seven pages with four more pages of instructions, it is somewhat longer than the current Fannie Mae 1003 (Form 65 at Freddie Mac). In its present iteration, the 1003 is four or five pages, depending on how it is laid out by the lender printing it, with four more pages of explanations and instructions.
The new form collects the same basic data as the current form, only it goes into far greater detail. This means lenders will need to adjust the way they collect information from borrowers, says Vitali of LoanLogics. They’ll also need to retrain staff to make sure loan officers are obtaining all the data they need to create a complete application, he says.
Another big difference is that lenders will need separate applications from each borrower when there is more than one person on a loan. Consequently, before originators can make a loan decision, they will need to separate and aggregate certain data from each borrower, while integrating duplicate data such as the assets that borrowers hold jointly. Technology can make this process much easier, according to Vitali, who says most lenders will be relying on their existing software systems while others will need new software or additional tools to ensure they can successfully make the switch.
According to the GSEs, the redesigned format will improve navigation and organization to support accurate data collection, capture details that support their requirements and offer clearer instructions that will allow borrowers to complete the forms with less help from their lenders.
“The redesigned URLA allows much greater flexibility than in the past by acknowledging that not all loan applications are the same,” Samuel Oliver III, vice president of single-family business transformation management at Freddie Mac, said in a statement. “It does a great job of capturing new data that aligns with (our) needs, eliminating irrelevant underwriting data fields and displaying information in an easier-to-read format.”
While the form can be completed and submitted electronically, Fannie and Freddie will also continue to accept paper versions. “Many small to mid-size lenders and credit unions…still need a paper form to collect and present loan application information from and to the borrower,” they said.
A Spanish “informational” version of the new URLA will be available shortly. But on that point, the trades beat back a proposal to ask borrowers their language preference. The Mortgage Bankers Association and others raised concerns that including such a question could create a reasonable expectation that the customer would receive communication in their desired language. They also worried that it would open lenders, borrowers and servicers to considerable origination and servicing costs.
This article was written exclusively for GoRion.