Big changes are coming in the standard application for home financing. But if lenders are not on the ball, the modifications could throw a monkey wrench into the mortgage sector. At least for a while.
The changes in the Uniform Residential Loan Application, aka form 1003/65, “are long overdue,” says Jon Haring, director of product management and a compliance expert at Ellie Mae, who notes that the document hasn’t been updated in nearly 20 years. But they “won’t be easy” to implement.
They have “the potential to disrupt” not just loan originations but also secondary market activities, Haring warns. Most lenders these days sell their loans to investors on the aftermarket.
The improvements to the form are intended to make the lending process more efficient and increase certainty. But, the Ellie Mae executive reports, they “are creating anxiety among lenders.”
Some 2,500 lenders use Ellie Mae’s loan origination system to process loans. About 40 percent of all mortgages are made on the Pleasanton, California-based company’s platform.
Fortunately, lenders have 11 more months to prepare for the changes. Use of the new URLA won’t be compulsory until Feb. 1, 2020. But in the lender world, that’s not a lot of time, especially with the heavy buying and selling seasons approaching rapidly and federal and state regulators looking over their shoulders.
At their request for a pre-mandatory test period, lenders can start using the upgraded form after July 1 so they can get any bugs out of their systems. But the changes impact not just lenders, but everyone else up and down the food chain, including title companies, mortgage insurers and servicers -- the companies that collect payments and distribute monies for insurance, taxes and profits on behalf of investors who own your loan.
“It’s probably unlikely that everyone across the entire lending ecosystem will be ready to support it. ... And if they don’t get it implemented correctly and information doesn’t flow completely and effortlessly, there could be delays or even pushback along the production line.”
Among the numerous challenges facing lenders and their vendors: Websites and point-of-sales platforms will need to be modified, data will have to be saved and reported, and decisions will have to be made regarding unusual situations, such as non-borrowing owners. And all of this will have to be done under existing compliance regulations.
The good news is that there is gold at the end of the transition rainbow. “The changes upon us are very positive,” Haring says. “Ultimately, the new URLA form is simpler, cleaner and provides better instructions for borrowers, and that’s a step forward.”
One of the benefits of the new application form is that it puts a lot of the information that’s already being gathered into greater context. For example, the current 1003/65 collects employment information in one place and income info in another, and there’s no correlation between the two. Consequently, the underwriter must figure out where the applicant’s money comes from.
With the new form, though, employment and income data are married together, side-by-side, so there is no longer confusion about how much of the borrower’s income comes from a particular source.
Also, space to list current and former addresses and employers is limited on the current application, as is the spot for listing other properties owned by the would-be borrower. But on the new form, those sections can be expanded to accommodate all the information a borrower needs to provide.
There are numerous other positives, too, all intended to provide additional levels of detail to make it easier to process, underwrite and securitize your loan. Here are just a few of the other improvements:
-- Borrowers should find the new form easier to complete without a loan officer’s help.
-- A new section allows you to choose the language you prefer. And there are now spots for email addresses and mobile phone numbers, items that weren’t even considered the last time the URLA was updated.
-- There’s a new field for rental or mortgage payments on former residences.
-- Another new section allows you to list assets such as earnest money, employer assistance and sweat equity that are tied to the transaction.
-- An unmarried addendum helps define the relationship between the borrower, additional borrowers and others with an interest in the property.
“All this may seem mundane; no big deal for consumers,” says Haring. “But in the final analysis, the time to get pre-approval or even approval should improve, and there will be less fallout because something was unclear. And eventually, the time it takes to close should be shorter.”