Why the FHFA's latest loan app revision may be the one that sticks

The Federal Housing Finance Agency changed its mind again about whether to add a limited English proficiency question to the GSEs' loan application, possibly for the last time.

As a result, the government-sponsored enterprises are postponing new Uniform Residential Loan Application and automated underwriting system datasets.

"To allow industry participants time to make the necessary changes, FHFA and the GSEs will be extending the deadlines for implementation of the URLA and AUS datasets; the mandatory use of the redesigned form will no longer begin on Feb. 1, 2020," the GSEs said in a joint statement.

The agency directed the GSEs to make other changes as well, including the deletion of a homeownership education and counseling question, the expansion of a section about the "use and sharing of information" and the relocation of a military service question to another part of the form.

But it's specifically the language question that has been an issue before.

Under former Director Mel Watt, the FHFA repeatedly wavered on whether to add it to the new application.

Now that the agency is under Mark Calabria's leadership, there's a chance the FHFA's current decision on the matter will stick.

The agency first considered adding the language question when it began working with Fannie Mae and Freddie Mac to revise the URLA.

But when it ran into unspecified financial industry opposition in 2016, Watt backed down from the idea, citing concern it would delay the URLA's implementation.

Despite this concern, the FHFA later reconsidered the idea of adding a language question again, and issued a request for public input on the possibility.

The Mortgage Bankers Association responded by explaining why it opposed the idea, noting that its main concern was that that it could lead to "heightened borrower expectations" about lenders' ability to provide services and forms that would address all LEP consumers' needs.

While the majority of LEP borrowers in the United States speak Spanish, there are many other languages they might speak as well.

After hearing the MBA's concerns, the FHFA moved ahead with a language question that included some changes aimed at addressing lenders' concerns. These included a disclosure stating that lenders may not have the resources necessary to communicate in a borrower's preferred language. The FHFA also launched an online clearinghouse last year with resources to assist lenders in serving borrowers with limited English proficiency.

Regardless of whether lenders are required to include a language question on GSE loan apps, they may be interested in finding ways to expand their customer bases by marketing to people with limited English proficiency. These consumers represent nearly 9% of the U.S. population, according to the MBA.