Fannie, Freddie Bring Mortgage Application into Digital Age

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New specifications for Fannie Mae and Freddie Mac's common mortgage application unveiled Tuesday add data points and remove obsolete questions, as well as include additional capabilities to promote digital mortgage workflows.

The completely redesigned Uniform Residential Loan Application — commonly referred to as the Fannie Mae Form 1003 or Freddie Mac Form 65 — won't be effective until Jan. 1, 2018, the same implementation date for collecting expanded demographic information under the Home Mortgage Disclosure Act.

In addition to collecting the expanded HMDA data, the new application requests information like the borrower's email address and cell phone number — details that lenders gather today, but weren't commonplace when the form was first implemented more than 20 years ago.

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When a borrower is completing a digital version of the application, certain sections can be expanded or collapsed based on the circumstances of the loan. Borrowers will also be able to use drop-down menus to provide information like types of assets and liabilities.

"The redesigned URLA allows much greater flexibility than in the past by acknowledging that not all loan applications are the same," said Samuel Oliver III, Freddie Mac vice president of single-family business transformation management, in a statement.

The layout of the application has also been reorganized so that information that a borrower provides and acknowledges is separate from information that the lender collects and verifies during underwriting. There are eight borrower sections and five lender sections.

To respond to the growing demand for mortgages from non-English speakers, the government-sponsored enterprises said they will also make a version of the new application available in Spanish. However, the document is non-executable and will only serve to assist borrowers in completing the English version of the application.

Despite the significant upgrades to the loan application, more could have been done in the redesign to embrace all-electronic processes, said Tim Anderson, the director of eServices at DocMagic, a Torrance, Calif.-based mortgage document software vendor.

"I just wish we could've finally gone to a true intelligent doc in the new MISMO format where the output would reflect just the terms and transactions that are specific to the conditions of that loan," he said, noting that unnecessary sections of the application are still visible on the paper document, even though borrowers don't have to fill them out.

The challenge, Anderson said, was that the GSEs couldn't make more radical changes to the form without alienating small lenders and borrowers who would prefer a paper-based process.

"They took it from the lowest common denominator, which would be somebody manually writing on a paper application and handing it to a loan officer," said Anderson, who also sits on the governance board of the Mortgage Industry Standards Maintenance Organization.

Released in conjunction with the new form is a collection of data standards called the Uniform Loan Application Dataset. The dataset was designed using the latest MISMO guidelines and is essentially a set of rules for formatting the data collected on the loan application to ensure accuracy and consistency.

The redesigned loan application and corresponding dataset have been in development since at least 2013 under the umbrella of the Uniform Mortgage Data Program, a joint Fannie-Freddie initiative to expand and standardize mortgage data collection. Previous UMDP projects include MISMO-based datasets for appraisal reports and the closing disclosure document.

While Fannie and Freddie jointly own the URLA document, other secondary market participants also use it, including the government loan programs of the Federal Housing Administration, Veterans Affairs and Department of Agriculture. They were consulted during the redesign process, along with the Consumer Financial Protection Bureau and lenders, software vendors, trade associations and housing and borrower advocacy groups.

The GSEs were also advised by Kleimann Communication Group, a Washington, D.C., consulting firm that helped develop and test the forms for the TILA-RESPA integrated disclosure rules the CFPB implemented last year.

Next month, Fannie and Freddie will release data specifications for their respective automated underwriting systems so that they align with the data format of the new application.

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