Editor’s note: Guest post provided by mortgage educator David Luna
With the upcoming mortgage industry changes to the Uniform Residential Loan Application (ULRA) 1003 we thought to reach out to David Luna, a leader in the mortgage education space, to get his take on what we need to know right now about the ULRA changes. David has more than 35 years of experience in the mortgage lending industry and spent a substantial amount of that time training loan officers and consulting with mortgage companies.
The mortgage industry is being shaken up with an overhaul to the Uniform Residential Loan Application (ULRA also known as a 1003) in 2018.
Those who have been in the mortgage industry awhile (30+ years for me!) know changes have been a long time coming. In fact, the form has been in use for more than 20 years and has not seen a material change since then. Changes will be made to accommodate new Home Mortgage Disclosure Act (HMDA) requirements that go into effect on January 1, 2018, and Fannie Mae and Freddie Mac will be implementing this new URLA in response to those requirements.
The new URLA includes 48 new data points to be filled out by borrowers and lenders as part of the loan application. It collects new demographic information to better help the CFPB and other regulatory agencies spot and recognize patterns of discrimination in the mortgage industry.
What are all these new changes and how will they affect the loan process?
Perhaps the most obvious change is the look of the form. Now a 9-page application, the new URLA has more white space, is easier to read, eliminates antiquated data (i.e. fax number) and replaces it with more current data (i.e. email and cell phone). It is available in an online editable PDF to make the application process easier for the borrower and the lender.
Another change that you’ll notice on the new form is that co-borrower information has been removed almost entirely. The only mention of a co-borrower that you will see is a space for the co-borrower’s signature.
Where is the co-borrower’s information collected on the URLA 1003?
A new form for additional borrowers collects all of the same information as for the borrower. This form works hand-in-hand with the URLA as part of the application.
The form now requires all of the borrower’s information on the first page. This includes: name, social security number, birth date, contact information, marital status, addresses, military service (for potential VA loans), as well as clarifications on self-employment or business ownership.
The new URLA makes the form less intimidating to borrowers. Loan amount, interest rate, term, mortgage product, etc. have all been moved further back into the application.
Your average homebuyer doesn’t know what the interest rates are, they don’t know what the term is, and they don’t know the products. So what do most borrowers do when they see those questions pop up first thing on the application? They skip them! They move to the information that they do know!
The new URLA addresses this problem and streamlines the process: All questions specific to the loan have been moved to Section 4 and all borrower information is now in Section 1.
In response to the revised HMDA rules, you’ll notice the new Section 7 is all about Demographic Information. As the form states: “This information helps to ensure that all applicants are treated fairly and that the housing needs of communities and neighborhoods are being fulfilled.”
Just like before, borrowers will indicate their ethnicity, sex and race on the form, but now they can do so with greater specificity. The information indicated will allow HMDA data to be used to monitor general compliance with ECOA and The Fair Housing Act across the industry, as well as to detect and prevent possible housing discrimination.
For the most part, I would say the new URLA is a welcome change; a new form that makes the application process simpler for both the borrower and the loan originator is something that the mortgage industry could benefit from. But as I meet with thousands of you in live CE classes across the country, I keep hearing the same kinds of things:
In Arizona I heard, “We aren’t ready for a change like this! A new form?!”
In Ohio: “We just finally got TRID all put together and figured out! Now we have another change?”
In Florida: “This industry just changes so much! New HMDA requirements and a new application form? Can’t it just settle down for awhile?”
While I understand that this industry can be a little crazy in how much it changes, please recognize that this change is for the better. Not only that, but when it comes down to it, we as an industry have no choice but to evolve. These new HMDA changes go into effect at the start of the new year and it is on us as mortgage professionals to adapt.
I mentioned that the changes to the application form are largely in response to the new HMDA requirements that go into effect on January 1. Well, Fannie Mae and Freddie Mac have yet to announce a mandatory effective date for this new URLA. Currently, there are instructions on the form that it is not to be used yet.
You’re asking yourself: “But Dave, if we are required to collect all this new information for HMDA but don’t have a form that collects it, how do we remain compliant with HMDA?”
Now you’re asking the right questions.
Here’s a “Band-Aid solution”:
Starting January 1, because the new borrower demographic information required by HMDA is not on today’s URLA, one could take Section 7’s Demographic Information page from the new URLA and add it as an addendum to the old URLA. This temporary fix will allow mortgage loan officers to collect the information that HMDA rules will require from the application before the new URLA becomes mandatory.
Hopefully FHFA will provide more guidance this fall before the implementation of the new HMDA requirements. We as an industry will need to gather the HMDA information from various sources, see if any information is missing, create systems to collect the missing information and check again before this goes live in January.
The only thing we can count on is change and the mortgage industry is changing again.
Webinar: New 1003 – Uniform Residential Loan Application (URLA)
Learn about the completely redesigned 1003, how the 1003 changes impact taking an application, and the importance of regulations and data reporting.
How are you preparing for the upcoming changes to the Uniform Residential Loan Application (ULRA) 1003? Share with us in the comments below.