PERSON OF THE WEEK: Last year the the Federal Housing Finance Agency (FHFA) passed its Preferred Language Rule which requires mortgage lenders to add a preferred language question to the redesigned Uniform Residential Loan Application (URLA).
The new rule is part of the FHFA’s overall effort to get lenders and servicers to interact with borrowers in their preferred language – including all documentation – whenever it’s possible.
By adding a preferred language question to the redesigned URLA, borrowers can establish their preferred language up front in the mortgage process.
The redesigned URLA also provides clear disclosures that the mortgage transaction is likely to be conducted in English and that language resources may not be available.
To learn more about what the benefits are of this new rule for lenders and servicers, as well as consumers, MortgageOrb recently interviewed Maria Moskver, general counsel and enterprise compliance officer of mortgage services provider LenderLive.
Moskver has more than 20 years of experience in consumer financial services, both as a practicing attorney and chief compliance officer. She has extensive knowledge of federal and state-specific regulatory issues, including the requirements imposed by TILA, RESPA, FCRA, FDCPA, Dodd-Frank and state-specific regulations.
Q: Last year, the FHFA approved the Preferred Language rule. Can you explain briefly what this means for the mortgage industry?
Moskver: It’s still a bit up in the air at this point, but the question could have significant implications for which translations and services are required of mortgage lenders and servicers.
Right now, the FHFA has included a caveat that the mortgage entity may not be able to provide documents and services in the borrower’s preferred language and that the mortgage transaction will likely be negotiated in English.
However, numerous state laws impose requirements on lenders and servicers when they are aware the borrower communicates in a different language, which could be triggered as a direct result of this question, since it documents the borrower’s preferred language at the outset of the mortgage transaction. And if this caveat is ever removed, it could require a serious and costly operational overhaul on the part of lenders and servicers nationwide.
Q: Given that the language preference implementation is still two years away, isn’t that enough lead time for lenders and servicers to be prepared, as was the case for TRID and HMDA?
Moskver: Two years is plenty of time to implement a new form or a new question on a form. The real issue here is the potential for new requirements as a result of the problem. Do companies need to employ new internal employees who speak these additional languages? Do companies need to hire third-party service providers to translate new documents or be available by phone? Do lenders and servicers need to implement new documentation practices based on state law requirements when they’re aware of the borrower’s communication preference?
These are the questions that remain, at least partially, unanswered right now, and two years may not be enough time to prepare adequately.
Q: What do you see as possible points of confusion in the interpretation of the new language requirement?
Moskver: At this point, there are no requirements associated with the question, aside from the fact that it must be included as part of the redesigned Uniform Residential Loan Application (URLA) beginning in February 2020.
The problem itself is relatively straightforward, although borrowers may be inclined not to answer it truthfully for fear of being treated differently during the remainder of the mortgage process. What may confuse is what obligation the answer to the question imposes on the mortgage lender and servicer throughout the rest of the lifecycle of the loan.
Q: Preferred language isn’t just a GSE or federal issue, right? There’s a lot of activity at the state level too. Which are the most active states, in your opinion?
Moskver: New York, California and Texas account for almost 50% of all limited english proficient (LEP) borrowers in the U.S., according to the November 2017 CFPB Spotlight Report. So, it should come as no surprise that these are three of the most active states when it comes to foreign language requirements.
These states issue translations of significant documents and often have requirements surrounding when those documents must be provided to borrowers. These requirements can depend on how the mortgage contract was negotiated or whether the servicer is aware the borrower communicates in that language.
Some additional states to note are Pennsylvania and Rhode Island, which have foreign language document requirements in recognition of the large numbers of their citizens who speak languages other than English, as well as Massachusetts, where the state does not necessarily provide the translations but does recommend to the borrower that they get their documents translated (putting the responsibility on the borrower rather than the lender or servicer).
Q: What are some of the benefits of the preferred language requirement for consumers – and are there any benefits for lenders and servicers?
Moskver: Communicating with a borrower in their preferred language – especially when it is in conjunction with communicating in English – helps to ensure the borrower fully understands the terms of the mortgage loan.
The better the relationship and line of communication between the lender or servicer and the borrower, the more likely it is that the borrower will complete the mortgage application and origination process, consistently make payments, be aware of their rights and options, and be responsive and cooperative throughout the life of the loan. This ultimately benefits the lender and servicer, as well.
Additionally, providing documents in borrowers’ preferred languages is better protection for a servicer if it must foreclose and the borrower chooses to challenge the foreclosure via court action. The borrower would have less of an argument that the servicers did not properly convey their rights on account of a language barrier if the servicer has provided forms and documents in the borrower’s preferred language.
In a time when the CFPB and other state and federal regulators are making LEP borrowers a focus as an underserved community, servicers would do well to make (and document) good faith efforts to improve communication with these borrowers by doing so in the borrower’s preferred language.
Q: So why not create a nationwide standard? Wouldn’t that be easier for the industry in total?
Moskver: Any compliance professional will prefer a nationwide standard over a patchwork of state requirements. However, in the case of foreign language requirements, a national standard may not be the feasible or a preferable alternative.
Demographics vary so widely from state to state, and approaches to foreign language requirements must be appropriately tailored to meet the needs of the population without being overly burdensome on the lenders and servicers trying to implement them. The changing demographics of the U.S. and every individual state would make it difficult for a national standard to stay on pace with its intended beneficiaries.
Census data is collected only every ten years, which means that a national standard based on U.S. Census data could fall short of being representative of the actual population and its language assistance needs. Further, because of the vast range in demand levels for foreign language services across the country (varying by state and even by county), there will likely still be consumer-friendly states that adopt additional foreign language standards even if a national standard is in place.