Are You Ready for the New URLA?
For the first time in nearly two decades, major changes are coming to the Uniform Residential Loan Application (URLA) used in all agency and some non-agency residential loan transactions. Through a Fannie Mae and Freddie Mae initiative, this important document is being overhauled to improve efficiency, transparency and certainty in the mortgage process. And while the change won’t be easy for lenders to make, it is long overdue.
Yes, the new form has the potential to disrupt new originations and secondary marketing. However, it will help move home lending deeper into the digital age. Having gone over the new form in great detail, I’m confident that it’s a huge improvement over the old form. It has a far simpler, cleaner overall look and feel, and provides better instructions for borrowers. Plus, it has new fields that reflect the current mortgage lending environment.
All that being said, the new URLA is creating anxiety among lenders—and for good reason. Change never comes easily in an industry as complex and as highly regulated as ours. Potential disruption from the new form could be as bad or worse than the TILA-RESPA Integrated Disclosure Rule two years ago, and there’s only a little more than a year to prepare. Fortunately, lenders can minimize the disruption by taking steps now.
Big Changes to the URLA
The biggest change to the updated application aside from new elements and its appearance, is the way that information is reorganized. The current loan application was designed from a lender’s perspective and is very dense with information. This new, dynamic URLA has been redesigned to be consumer-friendly and to look more like other disclosures. Some new features were designed to enable prospective borrowers to complete more of the process by themselves, without a loan originator.
For example, the last time the form was significantly modified, there was no consideration given to email addresses and mobile phone numbers. The new form not only accounts for this information, it’s also dynamic. On traditional paper applications, there is limited space to list certain things like the borrower’s current and previous employers, or the number of properties the borrower owns. The new form is dynamic, with expandable and collapsible sections. It can accommodate all the information a borrower has to give while keeping relevant information in context as opposed to overflowing into separate continuation pages.
There are many other differences to the new form. For example, the new form adds a section about the consumer’s language preference but states, “Your loan transaction is likely to be conducted in English,” and now asks if the borrower has a language preference other than English. Also, the form has a new component for an “additional borrower,” which replaces the traditional co-borrower section and is intended for someone who might share assets or liabilities with the primary borrower.
Another change can be found in the section for current and prior residences, where every address listed now includes a field for rental or mortgage payments. Under employment history, there’s a detailed section for income included for each job listed. Another new section provides a place to list assets tied to the real estate transaction, such as earnest money, sweat equity and employer assistance. These additional levels of detail will make it easier to process, underwrite and securitize loans.
Home Mortgage Disclosure Act requirements that went into effect earlier this year are also integrated into the new form. Plus, information about the types of loans veterans are getting will be collected. A new section covers credit counseling. And a new, unmarried addendum helps to further define the relationship between the borrower, additional borrowers and other persons with interests in the property.
A Lot of Work Lies Ahead
While changes in the new form are overwhelmingly positive, many of them will undoubtedly impact a lot of moving parts for lenders. Every stage of the origination process will be affected, including investor relationships, from taking the initial application to documenting the information on it, obtaining an underwriting decision and exchanging information with other parties. For this reason, the new form has the potential to be as disruptive – or even more disruptive – than TRID.
Consider this: all lenders’ websites that have built-in applications will need to be modified, as will all point-of-sale platforms. Pre-qualifications will need to change to accommodate the updated form. And the impacts don’t stop once the loan closes, either. Data on closed loans with the new application will need to be provided to investors and integrated into servicing platforms.
Adoption will be a critical challenge for many lenders. Because it has become increasingly important for organizations to understand their data in order to run their businesses successfully, leveraging the new data fields in the updated form will be crucial. Another challenge will be maintaining ongoing compliance during the period the forms are being implemented and then beyond.
All of this means lenders will need to make a lot of decisions. For instance, when there is more than one buyer, they’ll also need to figure out the number of joint borrowers, how many non-borrowing owners there will be and whether to provide separate applications or use the additional borrower pages. Other decisions will include when to select “does not apply” indicators, which will appear on the blank printed application, and considering the implication of selecting a foreign language, which could affect other documents in states like California and Texas.
The impact to document tracking and investor delivery need to be factored in, as well as the fact that the new URLA is a much larger digital document than its predecessor and requires extra storage space. There are also changes to the lender’s loan origination system (LOS) and the customization of plugins to consider. And if they print Lender/Loan Information pages, they’ll need to decide whether the Loan ID, Universal Loan ID, or both should appear in the header of a printed document—and a host of similar, smaller decisions that sound minor but could have far-reaching consequences if not thought through.
The Time to Prepare is Now
While the revised form becomes mandatory on all new loan applications taken on or after Feb. 1, 2020, automated underwriting systems are already being updated for the new forms. The GSEs want technology vendors to begin testing the new form by the first quarter of 2019, so that home lenders can start testing it by July. That may sound like plenty of time, but once the spring housing season gets under way, I guarantee it will spring up on lenders.
In the meantime, now is an excellent time for mortgage firms to prepare for this potentially jarring transition. Lenders can start immediately by first reviewing their operational procedures. For example, how will they handle loans that were originated with the old application but are still in the active pipeline when the new forms are implemented? This issue will be exacerbated on construction loans, given their lengthy lifecycle.
Extra attention and support will need to be provided to the preferred language. Fortunately, there are resources available to help with this effort. The Federal Housing Finance Agency has published a new clearinghouse that will provide Spanish translations for English disclosures, while Fannie Mae and Freddie Mac are publishing a Spanish translation guide for the new application. Lenders can start by discussing with their legal counsel how much they plan to utilize these guides.
Once the forms are integrated into automated underwriting systems, lenders should begin testing the updated application and updating any application plugins. This will be a good time for training employees and familiarizing them with the new form and workflow. This training should include how to complete applications and when to use “does not apply” indicators on the new form. Finally, lenders also should keep their investors’ needs in mind and be aware of where each investor stands in the transition process. Even though they might want to start testing in July, their investors might not be ready. The time to start having these conversations is now.
The good news is that lenders have time to analyze their processes and identify potential problems before the final implementation date 15 months from now. While there may be challenges ahead, the changes upon us are very positive as we make progress in this ever-evolving age of the digital mortgage. Ultimately the new URLA is simpler, cleaner and provides better instructions for borrowers, and that’s a step forward in powering the American Dream of homeownership.
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This article was originally posted in the National Mortgage Professional Magazine, December 2018, Volume 10, Issue 12.