My cat Myrtle never pays attention to rumors. Pine-scented cat litter next door? She shrugs. Line-caught salmon for dinner every night up the street? Couldn’t care less. Not so, however, in mortgage banking as rumors and bad-mouthing by some continue. How would you like to receive this email from a respected owner of a mid-sized non-depository lender in the Midwest? “This industry is turning on itself. We hear so many rumors and have people attacking us and calling our agents with things that are not true. I have never seen so much in-fighting ever. Why is everyone trying to take down everyone else with these lies? Why are the recruiters allowed to say anything they want? How can we get our industry to raise its standards and stop acting like the old subprime reps? It’s so disheartening!” [Apologies to any old subprime reps.]
URLA: Shades of TRID rollout?
The GSEs (Freddie and Fannie) have redesigned the Uniform Residential Loan Application (aka Form 1003), developed a corresponding Uniform Loan Application Dataset, and created a new Desktop Underwriter Specification (DU Spec) for submitting the redesigned Form 1003 data to DU. Rumor has it that the Agencies originally were going to implement it last January but the additional data fields required weren’t (originally) collected in a typical loan file, leading to complexity issues, so they kicked the can.
Want to see what the borrower will see? Here you go. Freddie Mac has a nice graphic showing the timeline. Unfortunately for every single lender, and every loan officer who takes a loan app, there’s a big difference between “Start planning now” and actually having everything in order. Do I have to remind you about how smoothly TRID was implemented having a year or two lead time?
Why are the Agencies doing this now? “Changes in the mortgage industry and the regulatory environment have led to the need for the GSEs to reassess the information obtained at the time of loan origination. The URLA/ULAD initiative has the following objectives. First, to update the URLA form to collect loan application information that is relevant and useful to the industry in making a loan underwriting decision, as well as update the physical format and layout to enhance the collection of information and usability of the form. Second, to develop and publish an industry data standard in support of the URLA. The ULAD Mapping Document provides a cross reference for every field on the redesigned URLA to the equivalent data point(s) in the MISMO Version 3.4 Reference Model. And third, publish GSE-specific automated underwriting system (AUS) specifications for Desktop Underwriter® (DU®) and Loan Product Advisor® updated to MISMO v3.4 and including the new URLA data fields.
I am fielding notes of dismay about the length and complexity. Nearly a month ago I published this: “In a world where things are becoming faster, easier, and more accurate, we have this for lenders?” There are some questions that every lender should be asking, and every vendor, and the Agencies, should have answers for. Third-party integration? Implementation support? business process design, LOS modifications, LO sales training?
How long is the form? The length of the redesigned URLA will vary depending on the number of borrowers, the type of loan and the type of transaction. All the examples I have seen are 9 pages, more if overflow is needed. The URLA Rendering Document provides additional formatting guidance for technology solution providers and lenders to tailor production of the form according to system requirements.
Wholesale lenders accepting brokered loans, or correspondent investors buying loans, will you accept two apps from the same lender for several months? (Lenders may begin submitting loan application production files starting July 1, 2019. Lenders will be able to submit their existing datasets until February 1, 2020.) F&F currently tell us that new applications dated February 1, 2020, or later must use the new AUS datasets based on MISMO v3.4. Applications dated before February 1, 2020, but that have not closed (e.g. construction loans) will be accepted in the existing data formats until February 1, 2021, when only the datasets based on MISMO v3.4 will be accepted.
Can or should the redesigned URLA be viewed in a web browser? It appears that no, the GSEs recommend that lenders and technology solution providers download the forms to their computers and then open the forms using a PDF document reader such as Adobe Acrobat Reader or Adobe Acrobat Pro. Ask F&F, but if the forms are opened within a web browser, the fillable PDF versions of the form may lose some functionality and as a result, not perform as designed.
By using the new URLA, are Fannie & Freddie telling the loan officer how to ask the questions and in what order? Ask your Agency rep, but it appears that they are proposing the consumer interview sequence of questions and interview flow as an interactive PDF that can take the role of input form. Experienced LOs are good at knowing how to glean information from their borrowers, and how to ask questions. Will that be eliminated?
What if the LO can’t have all the questions answered in one sitting? Good Question: that is likely to be bigger than just a technology change and will require modified processes and training.
Has there been real testing of the proposed interview flow and data sequence to see how well all of the new 1003 data elements will handle overflow cases (e.g., when you have 5 other sources of income and the form for 3, more assets and liabilities than there is room on the form to handle)? Ask Fannie & Freddie!
If your company just spent several months, tens of thousands of dollars, and countless hours of LO training rolling out a new LOS, what now? I don’t know – ask your vendor!
John Haring, Director of Product Management at Ellie Mae, shot over, “While the new URLA and ULAD are fifteen months away, that’s not a lot of time to get prepared for the impact of the changes. At Ellie Mae, we are planning to deliver functionality in the July 2019 timeframe to coincide with the early release date of the URLA and allow customers and partners ample time to test and transition. Ellie Mae’s goal is to always minimize any regulation or industry change so that it becomes a ‘non-event’ for customers and partners.
“Nearly every mortgage application is collected on Form 1003 or Form 65 and the format has not changed significantly in the last 20 years. Fannie Mae and Freddie Mac, under direction of the Federal Housing Finance Agency (FHFA), have significantly redesigned the form. With this, lenders may choose to use the new URLA starting July 1, 2019, although the GSEs will not require it until on or after February 1, 2020 for new loan applications.
“The redesigned URLA takes a design thinking approach, with dynamic field collecting and a presentation of data tailored to the individual borrower and loan scenario. The goal is to provide greater efficiency, transparency and certainty for future homebuyers applying for mortgage loans and greater consistency for lenders who sell to both Fannie Mae and Freddie Mac.
“While the new URLA and ULAD are fifteen months away, that’s not a lot of time to get prepared for the impact of the changes. At Ellie Mae, we are planning to deliver functionality in the July 2019 timeframe to coincide with the early release date of the URLA and allow customers and partners ample time to test and transition. “Ellie Mae continues to educate and keep customers and partners updated on the latest with URLA/ULAD with a series of webinars, FAQs and resources for training. Your readers can find them all on Ellie Mae’s Compliance Central.
Will the proverbial can be kicked down the proverbial road, and implementation delayed? Perhaps, but for now, despite lenders being caught up in the glamor of the nebulous “digital mortgage,” every entity that takes a loan app, and every investor that buys loans based on the information contained in that app, had better focus on having an implementation plan and holding vendor partners accountable. Pronto.
“Rob, I am seeing some lenders, and hearing about others, offering DACA loans. And some with conventional loans. Any feedback or anything you are hearing that make these possible?”
First, yes, apparently some lenders are offering these loans to individuals who fall under the Deferred Action for Childhood Arrivals (DACA) – a kind of administrative relief from deportation. Service to their community? Competitive reasons? Generally, lenders will make the loans and investors will buy them if some minimum level of residency is met. Some investors, such as loanDepot’s wholesale channel, spell things out in terms of eligibility.
Personally, I would be hesitant about basing my entire business plan on originating these loans, but that’s just me. Like MSAs and joint ventures, lenders should know all aspects. One can start by seeing what the U.S. Government, in its infinite wisdom and with its ability to state things in language we can all understand, has to say: “On June 15, 2012, the Secretary of Homeland Security announced that certain people who came to the United States as children and meet several guidelines may request consideration of deferred action for a period of two years, subject to renewal. They are also eligible for work authorization. Deferred action is a use of prosecutorial discretion to defer removal action against an individual for a certain period of time. Deferred action does not provide lawful status.”
Here is what Fannie’s Guide has to say about this. “Borrower Residency Status: The Selling Guide is clear that lenders, not Fannie Mae, determine whether an individual is legally present, and decide upon the documentation used to make that determination (my bolding). On the specific subject of DACA, lenders may wish to review applicable judicial decisions to evaluate whether current DACA beneficiaries’ status is consistent with being ‘legally present’ in the United States. We have also been advised to let Lenders know it is their responsibility, as always, to look at the specific circumstances of the individual’s employment to determine whether our continuity of income representation and warranty is met.”
Freddie Mac is also very clear in its guide (bottom of page 26) that the “Sellers represent and warrant that the non-U.S. citizen borrower is lawfully resident in the United States. Freddie Mac does not specify the documentation required to establish lawful U.S. residency…”
From what I understand, verbally FNMA and FHLMC are classifying DACA Borrowers as “Non-U.S. Citizen, not lawfully in the U.S.,” therefore, not eligible for financing. In writing they refer the actual question back to the lender.
FHA? Same kind of thing. The Atlanta HOC has verbally confirmed with lenders that there are still no changes to its policy. Namely, these individuals are considered temporary residents which fall under non-U.S. citizens without lawful residency in the U.S. and are not eligible for FHA insuring at this time. Borrowers with deferred action status are not eligible for FHA financing because they are not on a pathway to residency and do not meet the guidelines printed in the manual. Additionally, these loans are clearly not eligible for USDA financing as GUS requires you to enter information that identifies their status in the US. When you do so, GUS will tell you that the borrower is ineligible.
This commentary discussed DACA borrowers in the autumn of 2016 and it probably still aligns with HUD’s current position on DACA borrowers. There are millions of these people here in the U.S. and many of them are trying to apply for loans. Many of these loans are closing even though most lenders agree they should not.
Perhaps most DACA borrowers have probably closed undetected under FHA financing because HUD has nothing published regarding the ‘Category’ a Borrower’s EAD card is issued under (few were monitoring the “Category” of the Borrower’s EAD card on FHA loans and only recently became aware of Category C-33 being an identification of a DACA Borrower). Most lenders know that potential borrowers with EAD cards issued under Category C-33 need to be underwritten under paragraph (c) of Section (9) for Residency Requirement.
Since HUD published Handbook 4000.1, lenders have been told to “follow what is published in the 4000.1”. Some believe that a DACA borrower holding a valid EAD card should be eligible for FHA financing until HUD publishes that EAD cards issued under Category C-33 are not eligible for FHA financing. Because without that detail most DACA Borrowers will meet all of HUD’s published requirements under HUD Handbook 4000.1 Section II.A.1.b.ii. (A).(9).(b) for a ‘Non-Permanent Resident Aliens’.
Some in the industry believe that politics are to blame for the confusion (imagine that!) but that the Agencies will wait for one of the loans to go delinquent and push them back for repurchase stating the lender shouldn’t have made the loan because the borrower did not have a lawful status. Let’s hope that’s not the case. Agencies are not charged with setting the Administration’s policy.
(Thanks to Tony H. for this one.)
A delightful angelic little boy was waiting for his mother outside the ladies room of the gas station.
As he stood there, he was approached by a man who asked, “Sonny, can you tell me where the Post Office is?”
The little boy replied, “Sure! Just go straight down this street two blocks and turn to your right. It’s on the left.”
The man thanked the boy kindly, complimented him on how bright he was and said, “I’m the new pastor in town. If you and your mommy come to church on Sunday, I’ll show you how to get to Heaven.”
The little boy replied with a chuckle; “You’re kidding me, right? … “You can’t even find the Post Office.”
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Servicing: Don’t Underestimate Liquidity.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are hundreds of mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2018 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)