(Editor’s note: This is the second in a two-part series focused on the changes to the new Uniform Residential Loan Application that were introduced by Fannie Mae and Freddie Mac last month. To read Part 1, click here.)
In the mortgage industry, every little change – even a simple change to a common form – can have a significant effect on processes and systems.
Starting on Jan. 1, 2018, lenders are to begin using the newest version of the Uniform Residential Loan Application (URLA, also known as Fannie Form 1003/Freddie Form 67), which has been updated to make it simpler to understand and easier to use.
In addition to including clearer directions and sporting a more intuitive layout, the new form, which has not been updated in more than 20 years, also includes new data fields for increased reporting under the Home Mortgage Disclosure Act (HMDA). The updating of the form is part of the government-sponsored enterprises’ (GSEs) Uniform Mortgage Data Program, a larger joint initiative under the direction of the Federal Housing Finance Agency (FHFA), to standardize single-family mortgage data in the U.S.
But what are these updates really all about? Were they really necessary? Do they improve the form and bring tangible benefits to lenders? And why did GSEs Fannie Mae and Freddie Mac decide to do this now? To find out, MortgageOrb asked numerous experts for their feedback. Thanks to a very strong response rate, we now present Part Two of what we initially thought would be a single Q&A.
For this final installment, we have responses from Al Ogrodski, senior vice president of solutions strategy for ComplianceEase, and Bob Dougherty, vice president of business development at CalyxSoftware.
Q: What is your initial reaction to the changes? Do you feel they were necessary? Are there some changes that you feel were more needed than others?
Ogrodski: I like that the new format is similar to the loan estimate and closing disclosure, and there appears to be more data beneficial for underwriting and qualified mortgage/ability-to-repay compliance. I’m not sure I like having all of the different forms (i.e., borrower information, additional borrower information, lender loan information, etc.). And, no, I do not feel the changes were necessary.
Dougherty: As a loan origination system (LOS) provider, implementing these changes will take a significant amount of work, as we must support two versions of the URLA – the current version and the new version. Given the current landscape concerning the Uniform Loan Application Dataset (ULAD), with the new data points that have become commonplace in the past 20-plus years, since the current form was first implemented and the upcoming changes for HMDA, change was inevitable. Removing some of the obsolete fields, such as automobile owned, net worth and property legal description, was a value-add, and updating the borrower contact information with email address and cell phone number will be well received by the industry. In addition, with the revision provided by the HMDA for 2018, the government monitoring information change will be key to improving consumer and industry ease of use.
Q: Do you feel that the form is “clearer” and will be easier to use, as the FHFA says? Are the instructions clearer?
Ogrodski: No, in my opinion, because moving away from the “borrower” and “co-borrower” data on the same form will be more difficult to visualize joint assets/liabilities. But I do believe the instructions are clearer.
Dougherty: Although the new URLA may be easier for the consumer in electronic format, if one still relies on paper, it will be a bit of a conundrum figuring out what to provide to the consumer due to the form being dynamic. Also, at minimum, the new URLA will be seven pages for one borrower, plus four pages for an additional borrower and two pages for the lender loan information. So, if a married couple is applying for a loan, the new URLA will be a minimum of 13 pages. Also, section four (loan and property information), which is several pages back in the application, will be a big change for those underwriters still underwriting off a printed application. The instructions do provide some clarity, but the dynamic portion of the form may be confusing for the consumer. Fannie and Freddie did provide the ULAD mapping spreadsheet, which is very helpful.
Q: What do you think were the main reasons why the FHFA sought to update the form at this time?
Ogrodski: It was because of the new reporting requirements under the HMDA.
Dougherty: The three main reasons were as follows: 1) to simplify the form for the consumer; 2) to collect information that is relevant to the industry; and 3) to define a MISMO-compliant data set supporting the new URLA. With that said, it seems to truly correspond with the timing of the new HMDA requirements.
Q: What industry segments or positions do you feel will be most impacted by these changes?
Ogrodski: It will be the tech vendors – the providers of LOS, automated underwriting systems and document preparation systems.
Dougherty: Obviously, everyone in the industry will feel some sort of impact, but the biggest impact (and responsibility) will be on technology vendors.
Q: Do you anticipate that these changes will require system upgrades? And, if so, do you think those changes will be minor or major (disruptive) in nature?
Ogrodski: Yes. But it depends. Data-centric LOS will be in a good position to adapt to the new forms very easily. Form-centric LOS will require much more work to modify their user interface to adapt to the new forms.
Dougherty: These changes will certainly require system upgrades, which will be extremely disruptive for some vendors. Interestingly, the GSEs, even after the effective date, will not be ready to receive the new data set through Desktop Underwriter or Loan Prospector and will be required to convert the new data sets into the old 1003 format.
Q: Lenders can start using the redesigned URLA on Jan. 1, 2018. A timeline for required use of the redesigned URLA and ULAD will be established at a later date. What will your company be doing to prepare for the use of these forms, and how soon do you expect to get started?
Ogrodski: As a technology provider, we will be making the necessary changes to our systems to support the new forms and ULAD by Jan. 1, 2018.
Dougherty: We’re in a unique position because we have two LOS: Point and PathSoftware. For Point, we’re currently figuring out how to limit the changes to the software and maintain the current workflow with all of the new required data fields. Path, on the other hand, because it is data-driven (and not form-driven), was designed to adapt to new forms and regulations more easily. So, all we’ll need to do for Path is add the new URLA data points and map them to the correct lines on the new URLA.