A new loan application, also known as a 1003 (ten-o-three), required by the government sponsored enterprises recently left some lenders scratching their heads as they saw questions pertaining to the race of the applicant, as well as questions about how the information was obtained.
In August, Fannie Mae and Freddie Mac announced their new Uniform Residential Loan Application that they said will be available starting January 2018.
This is when the Home Mortgage Disclosure Act, an act which requires lenders to report certain data in order to ensure fair lending, will begin requiring lenders to gather more information about the race of the applicants. Any lender wishing to use the GSEs to sell the loan into the secondary market must use this form when originating the mortgage.
“A covered institution must permit applicants to self-identify their ethnicity and race using new disaggregated ethnic and race sub-categories,” said Michael Vitali LoanLogics senior vice president and chief compliance officer. “However the new rule will not require nor permit a lender to use these new sub-categories when identifying the applicant’s ethnicity or race based on their visual observation.”
An expanded HMDA demographic data collection will be required beginning January 1, 2018. Since the redesigned URLA includes these additional data fields, the GSEs originally announced that the form may not be used until January 2018.
Now, however, the Consumer Financial Protection Bureau moved the date that lenders can use the application up to January 1, 2017, according to an article by Richard Andreano, an attorney with Ballard Spahr.
The CFPB announced that “at any time from January 1, 2017, through December 31, 2017…at its option, [lenders may] permit applicants to self-identify using disaggregated ethnic and racial categories as instructed in appendix B to Regulation C, as amended by the 2015 HMDA final rule.”
The Equal Credit Opportunity Act, which was enacted in 1974, is an act now overseen by the CFPB that ensures fair lending. While Regulation B prevents discrimination, Regulation C is the rule which implements HMDA.
So while reporting ethnicity to HMDA won’t become a requirement until 2018, lenders will be allowed to begin collecting the data in 2017.
While this clears up some confusion as to the use of loan application, there are still some things lenders want to know before the rule takes effect.
The new form not only includes a section about demographics where the lender fills in not only what gender, race and ethnicity the borrower is, but also how they got the information.
“I’m not sure what the point is of those questions,” Mortgage Bankers Association CEO David Stevens said in an interview with HousingWire. “Are they asking us to decide based on observation?”
Here is a picture of the ethnicity-based questions on the new loan application:
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This part of the form asks the lender if they determined the gender, race and ethnicity were determined by either visual observation or surname.
“Lenders have been collecting the ethnicity and race data on prior applications, however effective in 2017 the lender is required to indicate how this information was obtained,” Vitali said. “The lender must report if the information was provided by the applicant or determined by the lender based on a visual observation and/or the applicant’s surname.”
Lenders can choose to use this new loan application beginning in 2017, or they can use a separate attached form with the old application to report this section of the form.
The new HMDA rule actually requires many changes. For example, new data fields where errors can occur will double in 2018. While the changes are coming, some taking effect as soon as 2017, many lenders still aren’t ready, according to Alice Alvey, Mortgage U senior vice president, who spoke about the changes in an interview on the Lykken on Lending broadcast.