TheMReport

46 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Trade Groups Question Language Preference on URLA Forms Asking borrowers to choose a language raises compliance and legal concerns for many organizations. S everal trade groups and organizations focused on the banking and mortgage industries recently wrote a letter to Federal Housing Finance Agency (FHFA) Director Mel Watt, concerning a potential last-minute addition to the new Uniform Residential Loan Application (URLA). The groups, including the American Bankers Association, Consumer Bankers Association, Consumer Mortgage Coalition, Credit Union National Association, Housing Policy Council, Independent Community Bankers of America, Mortgage Bankers Association, and National Association of Federal Credit Unions, noted their concerns over a particular part of the application that asks borrowers to indicate their language preference. The groups pointed out that the inclusion of the question raises serious compliance and legal concerns. The new changes to the URLA form are expected to go into effect later this month. "While we support a range of efforts to ensure that borrowers are well informed during the mortgage process, the inclusion of such a question on the redesigned form raises several serious compliance and legal concerns that strongly weigh against including it on the form or, at the very least, warrant a full vetting through a notice and comment process before its inclusion," the letter said. According to the banking groups, a question on language preference on the URLA would come with eight consequences: • Require lenders to ask borrowers sensitive questions before the interactions and implications of other rules are understood and addressed. • Create expectations among consumers that can't be met. • Provide an inferior means of obtaining and analyzing data. • Detract from other more promising avenues. • Potentially expose lenders to liability. • Open both lenders and borrowers to considerable origination costs. • Open servicers to new obligations and increase borrowers' servicing costs. • Require translation services without accompanying government or GSE materials. "At this point, the inclusion of the subject question would only create confusion, uncertainty and potential liability. Given the implications across federal agencies, we urge the FHFA to abandon this proposal or, at the very least, seek broader interagency and stakeholder input before proceeding further with this addition to the URLA," the group wrote in the letter. Single-family Home Purchases on the Decline Tighter underwriting standards and higher credit scores are likely to blame. C ompared to a decade ago, single-family home-purchase origina- tions have been cut in half. Actually, more than half. In 2005, there were 11.7 million loan applications for single- family. In 2014, there were 4.6 million—up a full million from the 2011 nadir of 3.6 million ap - plications. During that same time frame, the number of loan originations to purchase a single-family home dropped from 7.4 million to 3.2 million, yet the denial-rate for home-purchase loan applications has improved greatly, dropping from 18.7 percent denial in 2007 to 13.2 percent in 2014. These statistics come from CoreLogic's June MarketPulse report, as does a reminder that credit availability these days is still relatively tight, even if standards are loosening. At the same time, credit scores for applicants are much higher than even five years ago. According to CoreLogic, the average credit score of borrowers has increased from roughly 690 in 2001 to almost 750 in 2015, which could explain why, given still-tight standards, loan applications are on the rise and denial rates are down. "By just gazing at the bor - rowers' credit scores, one could conclude that mortgage origina- tions were constrained as a result of tight underwriting standards," wrote CoreLogic economist Archana Pradhan in the report. "The share of applications and originations with less than a pris - tine credit score has declined. The share of credit scores below 700 for applications has declined and has been offset by a greater share of credit scores above 740." The greater truth, then, according to Pradhan, could be that riskier applicants simply haven't tried for credit the way they did in the barn - storming pre-recession years. "Consumers are cautious more than they have been in the past and thus self-sidelining of cautious/discouraged consum - ers makes it appear as if credit is tightening," she wrote. "The decline in originations could, therefore, be a result of poten - tial applicants being either too cautious or discouraged from applying, more so than tight un- derwriting as the culprit in lower.

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