As you know, mortgage originators, borrowers, lenders, and GSEs have to transfer a lot of data back and forth during a typical mortgage application. Loan data needs to flow seamlessly between all of these parties to facilitate a fast and reliable transaction.
In order to streamline the process, improve data integrity, and create a consumer-friendly experience, government sponsored entities (GSEs) Fannie Mae and Freddie Mac have made a major update to the Uniform Residential Loan Application (URLA) (Freddie Mac Form 65/Fannie Mae Form 1003). This is the first change in two decades. They modified the form to make the mortgage process simpler and create a standard for the entire mortgage industry.GSEs modified the Uniform Residential Loan Application to make the process simpler and for the entire mortgage industry. Click To Tweet
In addition to the new loan application, GSEs (with the help of federal regulators) also created a new dataset to improve the quality and consistency of data collected during the application and underwriting process.
Brokers and loan officers won’t be required to use the new application and dataset for some time, but you can begin using it optionally in July 2019. Now is a good time to understand the new application and dataset and how they affect you.
The goal of the new Uniform Residential Loan Application is to create clarity for borrowers and underwriters, and set a data standard that supports the era of modern lending. The new form incorporates changes in the mortgage industry underwriting, eligibility policies, and regulatory requirements.
Essentially, this form is a response to the evolution of the mortgage process, the changing economy, and the needs of borrowers and lenders. See and download the new form here.
The GSEs worked with multiple parties to design the new streamlined application form. They consulted with technology providers, mortgage insurance companies, commercial banks, mortgage banks, various federal agencies (FHA, VA, USDA-RD, etc.), and Ginnie Mae. Then they ran usability tests with underwriters, borrowers, loan officers, and brokers to confirm the form’s superior function.
Finally, the form was reviewed and approved by the Consumer Financial Protection Bureau (CFPB). This approval is significant. It creates a safe harbor under the Equal Credit Opportunity Act, giving applicants an avenue to collect compensation if they are discriminated against by creditors.
As we mentioned, you won’t be required to use the new application until February 2020, though you can begin testing the application early in 2019. As of February 2021, new applications that use the old form won’t be accepted. This image explains the full timeline.
The new form uses a cleaner design with more open space. Several fields have been adjusted or moved around for easier navigation. It has the same general design of the Closing Disclosure and Loan Estimate forms so applicants will recognize them as a set.
For instance, information the borrower provides and acknowledged has been separated from information the lender collects and verifies. Usability testing showed this separation improved accuracy (fewer errors) and user understanding of the form.
Additionally, much of the language has been changed throughout the form for the sake of clarity, simplicity, and brevity. The instructions were rewritten entirely and use less industry jargon that borrowers wouldn’t understand. In fact, the new form won a 2017 ClearMark Award of Distinction from the Center for Plain Language, which recognizes plain-language communications.
The interactive (web) version of the URLA is dynamic. Sections of the form rely on conditional logic, meaning they appear or disappear depending on the applicant’s responses. This is another way the GSEs simplified the form. If a section doesn’t apply to an applicant, the applicant never sees it.
The new form even includes some ability for lenders to customize certain fields based on their design preferences and system capabilities. For instance, a lender may choose to slightly modify the form’s appearance to fit into their current workflow. Some components, however, are not editable, like field names, descriptions, or the order of sections.
The data set also includes fields for the new Government Monitoring Information (GMI) data on race, ethnicity, and gender of borrowers required by the Home Mortgage Disclosure Act, which the CFPB required as of January 2018. Once you begin using the new Uniform Residential Loan Application, you won’t have to file the Demographic Information Addendum to submit this information.
A Spanish version of the form was also created to help non-English speakers. The Spanish version is non-executable, however. Applicants must still sign the English version.
Along with the updated loan application, the GSEs also developed an updated dataset. The new dataset should improve the quality and consistency of all the data that’s collected during the mortgage process. It ensures that the information collected on the new application is correctly mapped to each data point required within the Mortgage Industry Standards Maintenance Organization (MISMO) Version 3.4 Reference Model.
The new dataset (outlined in the ULAD Mapping Document), allows technology solution providers to create their own software solutions that integrate with the application. For instance, a lender could create their own application that transfers the borrower’s data to the new URLA, in addition to other places. Technology providers should consult the URLA Rendering Document for additional information to tailor the form to their systems.
The purpose of the new dataset is to improve data integrity and the ability for each party involved in the mortgage process to reliably share information without error. Automated software plays a larger role in the mortgage process than ever, so this is an important feature.
This new dataset doesn’t change the mortgage process for the borrower, lender, and broker (if there is one in the transaction), but it creates a cleaner, faster, and easier to understand process.
Change is difficult, but the new form has a lot of advantages for mortgage brokers and loan officers.
Change is challenging, especially in such a heavily regulated industry. You’ll have to learn to use the new form and integrate it into your workflow. But the new form and data standard are designed to make your and your borrowers’ lives easier. It’s faster, simpler, more transparent, and easy for your clients to understand.
We recommend you download and investigate the new form now before you’re required to use it for new loans. Look specifically for any data required by the new form that you don’t currently collect.
The implementation deadline seems far away, but it will surprise you if you let it. If you use the transition period to make yourself comfortable with the form, your implementation should be smooth and painless.