MReport December 2020

TheMReport — News and strategies for the evolving mortgage marketplace.

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32 | M R EP O RT FEATURE E ver since President Kennedy borrowed it for a 1963 speech, the phrase " a rising tide lifts all boats" has usually been applied to eco - nomic plans or ideas that claim to advance everyone's interests. Next year, however, the mortgage industry is about to experience its own "rising tide," one that promises to benefit all mortgage participants—thanks to the cul - mination of data standardization efforts by the Federal Housing Finance Agency (FHFA) and the coming sea change in the loan application process. That sea change is the new Uniform Residential Loan Application (URLA), which will begin its year-long transi - tion toward becoming the new standard for mortgage loans sold to Fannie Mae and Freddie Mac beginning in February 2021. The good news? With the likelihood that lower rates and a tighter credit box will be with us for some time, lenders may find the new application more compre - hensively supports the application process. Borrowers should be pleased too, as the new URLA will almost certainly provide consumers with a more modern experience. However, there's much more to rave about than meets the eye. The new URLA will also make it easier for lenders to capture data for evolving lending scenarios that may present themselves in the coming year. More importantly, the new application will also eliminate many data ambiguities, which will lead to improvements in loan quality and reduced cycle times across the mortgage lifecy - cle. Time will tell, of course, but the advantages of more uniformity in data capture for all "boats"— including lenders, servicers, and the secondary market—cannot be overstated. Why Standardized Data Is Key T he difference in appearance between the new URLA and the current, which has for years served as the de facto standard for mortgage applications, is striking. Yet the new design also looks familiar—which shouldn't be a surprise, considering the GSEs selected the same designer that created the Loan Estimate and Closing Statement disclo - sures for the Consumer Financial Protection Bureau that went into effect five years ago. A more substantial difference with the new URLA is how it will be used. Although relatively few borrowers fill loan applica - tions by hand anymore, the current application was designed for borrowers to do just that. The new URLA, on the other hand, was designed specifically to collect and display information digitally. While the new applica - tion still requires certain key information to be provided, it's also a dynamic form, meaning it expands to account for additional borrowers and data needed for the case at hand. To truly understand the real "sea change" the new URLA rep - resents, however, a bit of history is in order. While the new URLA is the first major change in the standard loan application in more than 20 years, it actually repre - sents the fifth initiative under the FHFA's Uniform Mortgage Data Program (UMDP), which directed Fannie Mae and Freddie Mac (GSEs) to collaborate on common standards when doing business with their authorized sellers/ servicers. Other UMDP initia - tives included the Uniform Loan Delivery Dataset (ULDD, imple- mented in 2010 using MISMO ver- sion 3.0); the Uniform Appraisal Dataset (UAD, implemented in 2011 on MISMO 2.6 Valuation/ GSE2.6 and is being upgraded to UAD2 using a future MISMO release 3.6 or higher); the Uniform Mortgage Servicing Dataset (UMSD, announced in 2012 and halted in 2013 using MISMO ver - sion 3.3); and the Uniform Closing Disclosure (UCD using MISMO version 3.3, implemented in 2017). The fifth initiative, the Uniform Loan Application Dataset (ULAD), is the data companion to the redesigned URLA. Both docu - ments share a common design palate that features a modern look and feel. In the case of the URLA, new data elements have also been introduced that provide borrower details in a more complete fashion for non-joint credit applicants. Due to heightened credit risk, this is a scenario that could be more prevalent in the coming year. ULAD was designed to convey data from a lender's loan origina - tion system (LOS) to the lender's document preparation company. Interestingly, the GSEs each inde- pendently implemented upgraded message requirements for their respective automated underwrit- ing systems using MISMO 3.4 data standards, but they did not publish them as a "U" program. The message requirements do, however, include ULAD data. Until now, the industry had relied on the old FNM 3.2 flat file for both Fannie Mae and Freddie Mac automated underwriting, as well as for information exchange across multiple systems. With the introduction of ULAD, the 3.2 file is being retired. However, MISMO has issued a new speci - The Rising Data Tide Lifting Loan Quality The new Uniform Residential Loan Application could be the key to unlocking a future of clean data. By Elizabeth Green

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