From time to time, the industry gets a break and is awarded more time to deal with the changes that federal regulators, agencies, and/or the GSEs are making to the mortgage lending process. The most recent example is the Federal Housing Finance Agency’s (FHFA’s) decision to delay the optional use period for the redesigned Uniform Residential Loan Application (URLA) and corresponding datasets that was due to begin on July 1, 2019.
This type of delay is not unprecedented. It happened in 2015 when the CFPB delayed its TRID deadline from August to October. The companies that kept working to implement the changes despite the deadline adjustment were ready when the final rule went into effect and were ultimately better prepared to deal with the additional changes CFPB made with TRID 2.0 in 2018.
Those that assumed a delay meant they could focus on something else in the meantime, however, learned that what looks like a lucky break can turn out to be a challenge.
Mortgage Cadence EVP of Marketing Dan Green has gone on the record with his prediction that URLA related changes will be more significant for the industry than TRID. Smart lenders will remain vigilant and use this extra time appropriately.
Here are five key considerations for lenders in the wake of the URLA delay:
1. This delay is different
Previous delays were about regulators or investors seeing the industry’s need for more time to comply and providing it. For example, the first time URLA was delayed in 2016, it had to do with industry complaints about the “homeowner’s preferred language” question. At the time, Mel Watt was head of the agency and told the industry that, “After studying this possibility carefully, however, we have concluded that there are a number of unresolved issues related to including the question on the redesigned URLA and that attempting to resolve all of those issues in the timeframe in which we are currently operating would unduly delay the 2016 roll-out of the new URLA and put the 2018 implementation date at risk.”
The FHFA ultimately decided to add the language question in October 2017, with a new implementation deadline set for February 1, 2020.
Now, new FHFA director Mark Calabria wants to take a closer look at the possible implications of adding the “homeowner’s preferred language” question. One consideration the agency must address is if a borrower sets the preferred language to Spanish, is the industry then obligated to provide all other mortgage-related documents in Spanish? Same question for any of the other roughly 6,500 spoken languages currently spoken across the globe.
Unlike previous timeline changes, the answers to questions like this could fundamentally change URLA and its impact.
2. URLA compliance could become more challenging
We’re not sure what changes will be made and if they will make it easier to comply with the new requirements and use the new form. That said, Fannie expects there to be some changes.
On its website, Fannie Mae explains that it expects the FHFA to “engage with appropriate stakeholders and agencies to finalize issuance of an updated URLA form (emphasis added), corresponding datasets and a new implementation timeline.”
3. Changes introduce the possibility of increased risk
Leading technology firms have already made URLA related database changes and have begun the testing process in advance of the previously set optional use period. Remember that the updated URLA was originally published back in 2016 and then updated in December 2017. Our team has been working on it since the original publication date in 2016.
Now, there may be another round of changes. This adds complexity, slows down testing, and opens the door for errors. At Mortgage Cadence, we know how we’re dealing with that. We encourage lenders to speak with their vendors to ensure a plan is in place.
4. Updated processes and training are necessary
Many lenders were already preparing to begin using the new URLA document during the optional period. This means they have already adjusted their process to take in the new information, ensure that it’s collected properly, and format the updated document.
Gathering new data always entails both a technology and process change — and that impacts people because new training is required. Now, all previously laid plans must change. This could require a process update and new training material.
5. Continued testing is a must
Both Fannie Mae and Freddie Mac have committed to “continue to support our customer test environment and work with the lenders and technology software partners as a new timeline is determined.”
Whether the URLA changes significantly or not, diligent lenders will continue to test their new processes to make sure they are ready to implement.
The bottom line is that a delay by the regulator is not an indication that the rule will not go into effect. There is no guarantee that the final implementation timeline or the mandatory use date of February 1, 2020 will be changed. This means smart lenders will stay focused on the coming changes and make sure that their technology partners are doing the same.
To find out more about how we are supporting our lender partners through these changes, reach out to us today.