An overhaul of the home loan application form used by Fannie Mae and Freddie Mac also aims to make the document accessible to a growing number of bor- rowers who speak English on a limited basis. Here’s what originators need to know to best serve their clients.
This month, mortgage industry professionals gain the option of using Fannie Mae’s and Freddie Mac’s new Uniform Residential Loan Application (URLA). Although lenders and originators are not required to use the updated URLA until February 2020, the application was redesigned to more easily and accurately capture relevant and useful information throughout the loan-origination process, and to assist in making underwriting decisions.
The new form also aims to provide an easier, more consumer- friendly loan-application experience. Less jargon, more plain language and clearer instructions increase borrower clarity and understanding. The interactive version won a 2017 ClearMark Award, which recognizes the best plain-language communication written for consumers.
The new application includes two components designed to help people who speak English on a limited basis, or those with limited English proficiency (LEP). First, a Spanish version of the printed form was created to help people understand and complete the application. The Spanish version is a nonexecutable form, so applicants must still sign the English-based URLA.
Second, the Federal Housing Finance Agency (FHFA) required government-sponsored enterprises (GSEs) Fannie and Freddie to add a question to the form that allows borrowers to identify their preferred language. This enables mortgage professionals to connect borrowers to expanding resources in other lang- uages. The language-preference question clearly states that resources may not be available in someone’s preferred language, and that lenders are not promising to communicate or provide documents in that language. The application’s Spanish version and the language-preference question are part of the FHFA’s multiyear plan to increase language access to the mortgage process.
In 2018, FHFA directed Fannie Mae and Freddie Mac to launch the plan to help limited English-speaking borrowers understand and participate in obtaining a mortgage. The rationale for this initiative stems from the fact that many borrowers in the U.S. speak English as a second language or very little at all.
According to the most recent American Community Survey, 9 percent of the U.S. population, or more than 25 million people fall into this category. Of that group, 64 percent speak Spanish. The next most common languages spoken are Chinese (7 percent), Vietnamese (3 percent), Korean (2 percent), Tagalog (2 percent) and Russian (2 percent).
The language-access initiative grew out of the 2017 GSE scorecard, which required Fannie and Freddie to identify obstacles for non-English speakers in accessing mortgage credit. Fannie and Freddie were tasked with analyzing potential solutions to those barriers and developing a multiyear plan to implement them. Toward that end, the GSEs conducted interviews and focus groups with borrowers whose primary language wasn’t English, as well as with lenders and servicers.
These interviews tested people’s reactions to a language- preference question on the application and a separate disclosure for borrowers on preferred language. The research shed light on how borrowers work with mortgage professionals, and vice versa, throughout the mortgage process. The effort revealed that some mortgage-related language resources currently exist but have significant limitations. Language resources are not centrally collected or readily available. Furthermore, they’re often not considered reliable by borrowers or lenders.
Often, lenders and borrowers couldn’t find the proper resources or were reluctant to use them. Clients didn’t trust the language resources, while lenders feared liability issues. Written educational materials are a good starting point, but the analyses revealed that borrowers need to be able to interact with knowledgeable people who can explain the often-complicated mortgage process.
A language-access working group was established to move the plan forward. Representatives from the housing industry and consumer organizations that interact with and support limited English speakers provided their insights, commentary and experiences.
In 2018, the first phase of the multiyear plan focused on providing resources in Spanish, given that this was the largest single LEP group. Furthermore, by 2020, more than 50 percent of first-time homebuyers, who often need more guidance in the mortgage process, are projected to be Hispanic, according to Freddie Mac. URLA translations into other common non-English languages spoken in U.S. households (Vietnamese, Korean, Chinese and Tagalog) will follow in the near future.
In addition to the Spanish application form, a glossary of English-to-Spanish financial terms, prepared by the Consumer Financial Protection Bureau (CFPB) in collaboration with the FHFA and the GSEs, contains many mortgage-related terms such as annual percentage rate (APR) and escrow account. The glossary is available on the CFPB website. The CFPB also has a Spanish-language website.
The mortgage-translations clearinghouse on the FHFA websites provides a centralized collection of Spanish-language resources, including translated mortgage documents, glossaries and other educational mortgage materials. The first phase, implemented in 2018, enables lenders, servicers and housing counselors to access these materials and others from separate government agencies.
Although the first phase of the effort is geared toward lenders and limited to Spanish, the second phase will add a client face and functionality in additional languages. The clearinghouse will include glossaries and URLA translations in two other languages in 2019 and two more in 2020.
Lenders can take advantage of the Spanish-language resources to educate their LEP loan applicants. Forty-six percent of all homebuyers are first-time buyers who often lack knowledge about the mortgage process, according to a 2018 Zillow report.
A CFPB survey assessed borrower knowledge about mortgage-related concepts such as discount points and mortgage insurance. Only 28 percent of respondents understood the difference between the interest rate on a mortgage and the loan’s APR, and that’s without factoring in a language barrier. Repeat homebuyers had higher mortgage-market knowledge than first-time homebuyers.
Seventy percent of borrowers heavily used their lender or mortgage broker to get financing information, according to the National Survey of Mortgage Borrowers. Lenders and brokers can play a significant role in helping determine the type of mortgage the client chooses. The survey also found that up to 70 percent of borrowers choose their lender or originator before deciding on a loan type.
Mortgage professionals can clarify the process and assist in choosing loan products by defining terms, as well as explaining the pros and cons of various loan products. Originators also can help their clients better understand and successfully navigate the complex mortgage process by providing educational materials in the borrower’s preferred language.