For the first time in nearly two de- I cades, 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 Mac initiative, this important document is being overhauled to im- prove efficiency, transparency, and cer- tainty in the mortgage process, and it is long overdue.
The new form will help move home lending deeper into the digital age. lt has a simpler, cleaner look and feel and provides better instructions for borrowers. Plus, it has new fields that reflect the current mortgage lending environment.
Additionally, there is a strategic advantage for lenders to use the new URLA. As more lenders go digital, they can use customer data to make marketing, sales, support, and operational decisions. The new URLA collects an abundance of new data that, with the right technology, can be harnessed to achieve strategic insights and gain competitive advantage in the marketplace, as well as quickly and efficiently process, underwrite, and deliver the loan to the secondary market or servicer.
All that being said, the new URLA is creating anxiety among lenders and for good reason. Change never comes easily, especially in an industry as complex and as highly regulated as the mortgage industry. Potential disruption from the new form could be similar to the TILA-RESPA Integrated Disclosure Rule (TRID), and there’s now less than a year to prepare. Fortunately, lenders can minimize the disruption by preparing 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. The new, dynamic URLA is redesigned to be consumer-friendly and to look more like other disclosures. It was 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. lt can accommodate all the information a borrower has to give while keeping relevant information in context as opposed to overflowing into separate pages.
Additional highlights of the new form include: Option for language preference Option for an “additional borrower” for those who might share assets or liabilities with the primary borrower Fields for rental or mortgage payments for current/prior residences Employment history income section Assets tied to the transaction (earnest money, sweat equity, employer assistance, etc.)
The Home Mortgage Disclosure Act (HMDA) requirements that went into effect in 2017 are also integrated into the new form, as well as details on veteran loan status, borrower credit counseling, and the relationship(s) between the borrower, additional borrowers, and other persons with interests in the property.
ALOTOF WORK LIESAHEAD
While changes in the new form are overwhelmingly positive, many of them will undoubtedly impact lenders. Every stage of the origination process will be affected. For this reason, when the optional use period will be reinstated and have made no changes to the mandatory use date of February 1, 2020. However, once the forms are integrated into automated underwriting systems, lenders should begin testing the updated application and updating any application plug ins. This will be a good time for training employees and familiarizing them with the new form and workflow. To successfully manage the transition, lenders should formulate implementation plans with clear goals and objectives, then execute against specific milestones. Plans should be designed to minimize disruption and coordinate changes across multiple vendor solutions. The overriding goal for lenders should be to prepare their organization, including training, testing, operations and technology, to manage a seamless transition to the new URLA with minimal business disruption.
The good news is that lenders have time to analyze their processes and identify potential the new form has the potential to be as disruptive, or even more disruptive, than TRID.
Consider this: 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. And the impacts don’t stop once the loan closes, either. Data on closed loans 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 to run their businesses successfully, leveraging the new data fields in the form will be crucial. Another challenge will be maintaining ongoing compliance as the forms are being implemented and beyond. The impact to document tracking and investor delivery needs 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 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 decisions that sound minor but could have far-reaching consequences if not thought through.
THE TIMETO 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. Now is an excellent time for lenders to prepare for this transition. Lenders can start immediately by 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.
As of June 12, 2019, Fannie Mae and Freddie Mac announced the redesigned URLA will no longer be available for optional use starting July 1, 2019. At this time, they have not indicated if or problems before the final implementation date eight 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 and cleaner and provides better instructions for borrowers. That’s a step forward in powering the American dream of homeownership.