In California, foreign language translation requirements have been added for essentially all lenders other than federally chartered banks, credit unions, savings banks or thrifts, which are expressly exempt.
While one mortgage banking attorney says lenders may decide not to translate loan documents in some cases because of the high costs involved, there are other opinions on the issue. A language translation veteran says the new legal requirements will make the loan originator business more profitable.
Under California Assembly Bill 1160, banks are required to provide a good faith mortgage estimate in Spanish, Chinese, Tagalog, Vietnamese or Korean if loan terms were negotiated verbally or in writing in any of those languages. While most residential mortgage lenders have been living with the requirements for awhile now, the law recently added those licensed under the state's Residential Mortgage Lending Act.
The vast majority of residential mortgage lenders in California that are not affiliated with insured depositories are licensed under the act, according to Jonathan Jaffe, a partner with the law firm K&L Gates in San Francisco.
"Going forward, the lender may deliver either the loan documents or a form of RESPA's good-faith estimate published by certain California licensing agencies," Jaffe told this publication. "It is unlikely any lender will opt to translate the loan documents, as that process would be prohibitively expensive (for example, if the lender has 50 loan programs) and there is the risk that the translations could be attacked as being incorrect or inadequate."
AB 1160 requires lenders to deliver, prior to the execution of the contract, a form in the specified language summarizing the terms of the contract or agreement. For violations of these provisions, the bill gives the licensing agency authority to impose administrative penalties of up to $2,500 for the first violation, $5,000 for the second and $10,000 for each subsequent violation.
Regardless of costs, loan origination systems will need to be reprogrammed to accommodate the translated GFE forms, Jaffe added. "But programming of the forms is not the only issue, he said.
"Printers will need to be reprogrammed or new printers purchased that are capable of printing the special characters that some of the foreign languages use. While many lenders have already grappled with the printer issue, those lenders who are newly covered by the bill will not have to deal with it."
Mortgage originators working with REO assets and comparable homes must become proactive and not reactive to this bill, says George Rimalower, president of ISI Translation Services, a Los Angeles-based company that provides full-service language and localization solutions.
"They must not rely on their bilingual staff or acquaintances to bridge language barriers," Rimalower told Managing REO. "There is simply too much at risk. Originators should only work with companies that provide translation and interpreting services. Be prepared. Have templates pretranslated."
He stresses that the law is designed to ensure that mortgage documents—"arguably the most complex of all consumer finance documents"—are better understood by limited-English speaking homebuyers. He says it's "good business practice" for originators to translate material and communicate with as many people as possible.
"Now borrowers will have the opportunity to understand these terms and they will be more likely to avoid tricky and confusing loan products. AB 1160 will lead to increased customer satisfaction and appreciation of the language/cultural outreach."
California has typically pioneered language initiatives. As a result, Rimalower believes it "will be very interesting to see how this develops" with other states as well as on a national/federal level.
He believes that AB 1160 will eliminate a key factor in mortgage defaults. "Up to this point, lack of translation of mortgage documents has compounded other problems—such as adjusting interest rates and prepayment penalties—that have contributed to rampant foreclosures. With this new legislation, borrowers will better understand these terms and they will be more likely to avoid tricky and confusing loan products."
While it will take lenders time and money to be in compliance, the bill will be "extremely beneficial" to an originator's business. "I have no doubt that by bridging these language barriers mortgage originators will reduce costs. They will see a decrease in the number of customer service calls, a reduction in account maintenance time and a drop in legal intervention and litigation," he said.