As mortgage lending becomes more digital in every step of the process, lenders, investors and regulators are taking a long hard look at the data underlying every loan. For all of the parties to communicate effectively, loan data needs to flow seamlessly from application to underwriting to closing to investors.
In response to the need for an overhaul of the existing mortgage-application process and information collected from borrowers, government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are implementing the first major overhaul of the Uniform Residential Loan Application (URLA) in more than 20 years.
This redesign provides both lenders and borrowers with a more consumer-friendly, streamlined loan application. With input provided from several federal agencies, the new URLA will help prevent information gaps in the initial application.
Also, the GSEs, under the direction of their federal regulator, jointly created a data set that’s a component of the Uniform Mortgage Data Program. It is part of an effort to enhance data quality and standardization that meshes with their underwriting programs.
While required use of the new URLA and the data set is still more than a year away, optional use begins in July of 2019. Mortgage originators and lenders need to understand what is changing and how they can work with their technology partners to ensure a smooth transition.
In deciding how the application would look and determining which data fields needed to be changed or updated, the GSEs worked with lenders, technology solution providers, Ginnie Mae, mortgage insurance companies and several federal agencies, and more, to ensure that these changes would benefit all parties.
These adjustments were then put through eight vigorous usability tests from borrowers, underwriters and all other parties who are imperative in this process. The resulting loan application provides more clarity for borrowers and a data standard that supports the evolution of digital lending.
“ The GSEs will require the use of the redesigned URLA for all new loan applications by February 2020. ”
At the conclusion of this process, the Consumer Financial Protection Bureau reviewed the document and gave it an official approval. The approval establishes a safe harbor for use under the Equal Credit Opportunity Act, which makes it unlawful for creditors to discriminate against applicants.
The URLA document supports changes in mortgage industry credit, underwriting, eligibility policies and regulatory requirements. The redesigned URLA was updated to more easily and accurately capture all of the loan-application information that is relevant and useful to the industry throughout the loan-origination process and in making an underwriting decision. The new layout provides flexibility and supports current and evolving practices for the collection of loan information.
The URLA document was designed to improve the mortgage-application process for both lenders and borrowers. The new application promotes greater efficiency, transparency and certainty. The loan-application process doesn’t change for the lender or borrower.
New and updated fields reflect changes in policy and underwriting standards, helping lenders better comply with new regulations. New borrower-demographic information, for example, will be solicited to comply with updates to the Home Mortgage Disclosure Act. Outdated fields not relevant to the qualification process (for example, automobile make and model) have been removed from the application.
The effort aims to provide an easier, more consumer- friendly loan-application experience. Less jargon, more plain language and clearer instructions increase clarity and understanding.
The interactive version of the redesigned URLA won a 2017 ClearMark Award of Distinction from the Center for Plain Language. The ClearMark award recognizes the best plain-language communication written for consumers.
A Spanish version of the printed URLA also was created to help people understand and complete the application. The Spanish version is a non-executable form, however, so applicants must still sign the English URLA.
The URLA document has a cleaner look and feel, with more white space and easier navigation. It has the same look and feel as the Loan Estimate and Closing Disclosure forms and also is dynamic in nature regarding addition and deletion of sections based on loan scenarios.
Improved data quality
The new data set developed by Fannie Mae and Freddie Mac — called the Uniform Loan Application Dataset (ULAD) — corresponds with the updated application. The new data set aims to improve data quality and data consistency throughout the mortgage process.
The creation of the data set ensured that the information collected on the URLA was correctly mapped to each data point that was required within Mortgage Industry Standards Maintenance Organization (MISMO) Version 3.4 Reference Model. This aims to create consistent information to be shared between not only the GSEs and third-parties, but also between the GSEs themselves.
Keep in mind that while the GSEs’ automated underwriting engines will be required to coincide with the data-set points, they will still differ based on their individual credit and underwriting policies. The data set and the new URLA will not change the loan process for the lender or the borrower, but they will assist in creating a clearer, more consistent and easier-to-understand process.
Obsolete aspects of the previous forms have been removed from the new URLA, and important, relevant information has been added to personalize each loan application to that individual. Lenders will want to prioritize key components of the implementation process, such as aligning systems, training staff and updating policies to mirror the changes that have been made to this process.
The industry may begin using the redesigned URLA starting July 1, 2019. The GSEs will require the use of the redesigned URLA for all new loan applications by February 2020. While the official implementation deadline seems far off, now is the time to prepare for a seamless transition. The first step is to identify any data on the new URLA that is not being collected currently and develop a plan to begin collecting that data.
Also, work carefully with technology partners, especially loan-origination software providers and document- services providers. All loan-origination software systems will need to rewrite their data files in accordance with the new GSE underwriting-software specifications. The majority of the data in the old data specs also is included in the new-data specs, but they are completely different file layouts.
Technology-solution providers must be able to generate the newly revised URLA form as well as update their interfaces with the GSEs to utilize the latest specifications that support the ULAD. By reviewing all correspondence published by software partners and document services providers, lenders can stay informed about upcoming changes to the systems and prepare to utilize the newly redesigned URLA as soon as it is available. Take advantage of webinars and other training opportunities offered by Fannie Mae, Freddie Mac and your mortgage-technology service providers.
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Although February 2020 may seem a long way out, the date for required adoption of the new URLA will be here before we know it. By taking the necessary steps now to prepare for the new application and data set, lenders can navigate the transition more easily and better serve their customers moving forward.