Rates are down and a new real estate selling season is approaching. Here’s what you should know about the change in the mortgage loan application form. Fannie Mae and Freddie Mac will require lenders and banks to convert and integrate the new mortgage loan application form fully by the year 2022. The new Uniform Residential Loan Application (URLA) has fresh fields to allow for a more complete, efficient and concise mortgage loan application – a far cry from the don’t ask don’t tell approach of the early-nineties to early-aughts. The new URLA language is more concise in some areas, and the explanation of borrower responsibility is easier to read. The mapping of the data fields on the new form to the Mortgage Industry Standards Maintenance Organization (MISMO) v3.4 dataset is called Uniform Loan Application Data Set (ULAD). Wait, lets go over those acronyms just used.
What is a URLA?
Uniform Residential Loan Application. The standardized form is used for mortgage loan applications. Fannie Mae calls its URLA Form 1003 and Freddie Mac calls its URLA form 65. Both forms have identical information fields, which is used for underwriting conforming loans, when combined with documentation of the form information. The current URLA has been used for over twenty years in all US States and Territories.
Who is MISMO?
Mortgage Industry Standards Maintenance Organization, MISMO, is a wholly owned subsidiary of the Mortgage Bankers Association. MISMO was formed in response to calls for regulation of “predatory lending”. MISMO’s stated mission “is to drive standardized data and information and improved business practices between all mortgage stakeholders through collaborative and innovative initiatives that improve efficiency, reduce costs and facilitate stakeholder success.“ GSEs worked together to map the new URLA to MISMO to assure that the new URLA would align with the data sets needed for better underwriting practices.
What is a GSE?
GSE stands for Government Sponsored Enterprise and refers to quasi-governmental privately held establishments to improve and stabilize the flow of credit to sectors of the economy. GSE’s are established by congress and includes enterprises such as Fannie Mae (FNMA) and Freddie Mac (FHMLC).
Who is FNMA and FHLMC?
FNMA is referred to as Fannie Mae. FNMA, Federal National Mortgage Association, is a shareholder owned company. FHLMC, referred to as Freddie Mac, is Federal Home Loan Mortgage Corporation, a federally chartered private corporation. Both Fannie Mae and Freddie Mac were created by Congress to provide liquidity, stability and affordability in the mortgage market.
Why did FNMA and FHMLC change the Uniform Residential Loan Application Now?
The current URLA did not encourage collection of all the pertinent data that is relevant and useful in making a loan underwriting decision. Lenders were continuing to make inferior lending decisions often because the URLA did not ask the right questions. The new URLA is more user friendly, but asks for additional data needed for better, more effective and compliance friendly mortgage loan underwriting.
The change is part of development of an industry data standard in support of the URLA.
The New URLA will better dovetail with changes in GSE automated underwriting system (AUS) specifications. It will also try to deliver better efficiency, transparency and certainty for borrowers trying to apply for a home purchase mortgage. If you are anxious about the new application, think of it this way. Your mortgage loan approval based on more accurate information in the new URLA will be less likely to be kicked out once you deliver the documentation. The underwriter of your new mortgage loan will need to make sure, not just that you are a good borrower, but that the new mortgage loan does not induce financial hardship to you.
What Changed in the New URLA form:
Changes in the URLA, FNMA 1003, or FHMC 65 form:
The layout may be different, but much of the information requested is the same. You need to specify whether you want to apply jointly or individually for credit, the old form had spaces to complete if there was more than one borrower- Same information handled differently. See? So far, no big deal. Here are some new information requested:
- Do you have a non-English language preference? There is a place to mark that. The loan application will be signed by you, so you need to understand what claims you are making. Regardless of whether you are comfortable with having your loan originator explain the document to you, make sure you can read before you sign.
- There is also now a box to check if you are “employed by a family member, property seller, real estate agent or other party to the transaction.” Many arms-length transactions were hidden in the years leading up to the financial crisis. This unassuming question is vital to today’s compliance and prevention of fraudulent loans.
- Real Estate Financial Information requests information on other properties you own and the type of outstanding financing and credit limits on each property where applicable. This will help indicate occupancy of each, as well as the level of debt you have attained. This is a measure of risk, and therefore affects interest rates, loan to value amounts and other underwriting decisions.
- Other type of financing that exists or is pending on the subject property. What is the source of the down payment funds as well as the status of those funds. Did you obtain a second mortgage to cover the down payment? If a family member is giving you down payment funds, are those funds deposited or not deposited? If you are receiving funds from a state agency or unmarried partner or employer, list that asset’s type, status, source and value. Are you borrowing money for this transaction (such as funds for closing costs, down payment, new flooring etc.) OR are you obtaining money from another party such as the realtor or seller that you did not disclose on this application? How much?
- Will you occupy the property as a primary residence, and if yes, have you had an ownership interest in another property in the last three years?
- Do you have a family relationship or business affiliation with the seller of the property?
These changes are not major for most of you, but will help the lenders keep up with regulatory tracking. As far as whether you will still get loan approval, the rules for loan programs still follow the five C’s of credit: If you have saved money for closing costs, or down payment, or have some cash reserves for unexpected life events; If you pay your creditors, and you buy a home within your budget, you should be fine. Answer the URLA questions honestly.
See? Not so Bad after all.