As published in ABA Banking Journal.
The Uniform Residential Loan Application—the tried and true mortgage loan application that has been in place for decades—is in the headlines again. Many industry professionals practically have this document memorized as it’s been in use for so long. And it’s all about to change. Fannie Mae and Freddie Mac have completely redesigned the URLA’s content and layout. The familiar four-page document is about to be replaced by a system of five components—components that are mixed and matched together to fit the needs of a particular transaction. Good-bye to the “one size fits all” loan application.
The need for change. Fannie Mae and Freddie Mac recognized that in today’s underwriting world, updates were needed to ensure that relevant information is being collected. Toward that end, the GSEs have both added and removed information from the URLA. The GSEs also wanted to improve the ease-of-use of the form, so the redesign incorporates a more “user-friendly” approach.
When reviewing the new URLA components, lenders will notice that it now has some of the same design elements that are incorporated into the TILA-RESPA integrated disclosures, the Loan Estimate and the Closing Disclosure, including the use of “white space” and the use of headings to help navigate through the document. And finally, the GSEs have created a new uniform data set to be used for loans sold on the secondary market—the Uniform Loan Application Dataset. Use of this dataset will be important to loan origination systems when submitting loans to Fannie Mae and Freddie Mac.
The timeline. The GSEs originally established an early use date of July 1, 2019, with a mandatory use date of February 1, 2020. If you have been following the news, you know that the early and mandatory use dates have been suspended. We are expecting additional information from the GSEs about the usage dates in the near future.
Details of the changes. One of the new features of the URLA is its dynamic functionality. This means that certain sections of the document can expand depending upon specific details about the borrower. For example, sections like Income, Assets and Liability, etc., can expand to print all the information that the borrower needs to provide. Similarly, certain sections can contract when that section does not apply. The dynamic functionality is an exciting feature, since it will allow the relevant information to be kept together, without the need to use a Continuation Sheet for the “overflow” information.
Here are the five new components of the URLA with a typical page count:
- URLA-Borrower Information (7 pages)
- URLA-Additional Borrower (4 pages)
- Unmarried Addendum (1 page)
- Lender Loan Information (2 pages)
- Continuation Sheet (1 page)
As you can see, the page count for the URLA will increase. A typical transaction (two borrowers with joint assets) would require the first (URLA-Borrower Information), second (URLA-Additional Borrower), and fourth (Lender Loan Information) components listed above. The page count would be approximately 13 pages.
If you have two borrowers who do not have joint assets, the transaction would require two instances of the first component, the URLA-Borrower Information, as well as the Lender Loan Information component. By using two instances of the URLA-Borrower Information component, both borrowers will be able to fully disclose their separate financial information.
The latest changes. In addition to extending the timelines for the new and improved URLA, the GSEs are planning to develop a voluntary consumer information form that will include a language preference question (previously in the first and second components of the URLA) and a homeownership education and housing counseling notice (previously on fourth component). Additional minor edits to the components are expected from the GSEs soon.
Planning for the change. The revised URLA is the biggest mortgage compliance change since the TRID amendments in 2015. Preparation is key, and the place to start is with an implementation plan. It will be important to understand which areas of your bank will be impacted by this change. You will need to ensure that staff has been trained on the new components and the new information to be gathered, and that you have conducted your due diligence testing after your forms vendor has provided the updated content.
While your loan origination system vendor will likely be supporting the dynamic version of the URLA, you will want to consider whether your bank has a need for the static images as well (for example, print versions for a lobby kiosk or other “handout”). You will need to monitor for updated URLA content and consider how you will use the new voluntary consumer information form. Finally, you should determine whether you’ll implement the redesigned URLA early or wait until the mandatory use date. Continue to monitor for more information on the revised use dates and consider the benefits of testing the waters.
The URLA is an important document in mortgage lending, and this major redesign requires planning and preparation. Even though the GSEs are going to extend out the use dates, don’t be caught off guard—start your review of the revised document now and put your implementation plan in motion.
Jeanne Erickson is a senior attorney in Wolters Kluwer’s financial services practice.