Compliance Blog

Written by Brandy Bruyere, Vice President of Regulatory Compliance, NAFCU

Good morning from NAFCU’s spring Regulatory Compliance School! Sometimes a question from a member leaves me digging around in the Federal Register looking for more information. Where a rule or its commentary still leave you wondering what is required, those old preambles can provide clarity. It’s pretty satisfying when that actually happens. Other Federal Register dumpster dives are less illuminating but helpful anyway. Today’s blog covers one of these recent research efforts.

As credit unions who sell mortgage loans to Fannie Mae or Freddie Mac (the GSEs) are likely aware, there is a new Uniform Residential Loan Application (URLA) coming. For applications received on or after February 1, 2020, credit unions who sell loans to the GSEs will be required to use the new URLA. The GSEs are allowing lenders to start using the redesigned URLA as early as July 1, 2019. The URLA was updated in 2016 in anticipation of compliance with changes to Regulation C (HMDA) that require seeking specific race and ethnicity information from borrowers. However, these additional upcoming changes to the URLA are more significant.

Many credit unions use the URLA for mortgage loans even though they are not selling to the GSEs. Why is that? Likely because of Regulation B, where Appendix B to the rule has model application forms including the 2004 version of the URLA. Regulation B has some general rules against seeking information from credit applicants. Use of one of the model applications in Appendix B is generally considered to be in compliance with provisions in the rule that limit credit unions from asking for certain information. While there are some exceptions, there are general rules against:

• Collecting of information about “race, color, religion, national origin, or sex” other than to self-test or comply with HMDA (section 1002.5 (a) & (b));
• Seeking information about a spouse or former spouse (section 1002.5(c)); and
• Inquiring about marital status, income derived from alimony, child support or similar, or questions relating to childbearing/childrearing (section 1002.5(d))

Examples of some of the exceptions include seeking spousal information when the spouse will be allowed to use or be contractually liable on the account.  Section 1003.4(c) also requires written applications for dwelling-related loans subject to HMDA, and use of the model form is considered to meet that requirement as well. So the URLA is used more widely than just by credit unions that sell mortgages on the secondary market.

Despite updates to the URLA in 2016 to reflect changes to HMDA, the current version in Appendix B is still the 2004 version. This form does not reflect the specific race and ethnicity inquiries currently required by Regulation C. We were recently asked why the version of the form in Appendix B is not HMDA compliant. This is not clear or apparent from the regulation itself.

It turns out there’s an explanation buried in the Federal Register. Back in October 2017, the CFPB made amendments to Regulation B to bring it into conformity with amendments to HMDA. This is covered in more detail in this past NAFCU Compliance Blog. At this time, and in a separate publication in the Federal Register, the Bureau also indicated that use of the 2016 URLA was permissible. The Bureau concluded that the 2016 URLA was in compliance with Regulation B’s limitations on certain requests for information.

So what about the 2020 URLA? To date, the Bureau has not publicly deemed this document to be similarly in compliance with Regulation B. The areas of the 2020 URLA that might have implications from a Regulation B information collection perspective seem similar to the 2016 URLA. Time will tell if the Bureau will bless this newest version of the URLA for Regulation B model application form purposes. NAFCU will keep you posted as that develops.

In the meantime, if your credit union does use the URLA and sell mortgages on the secondary market, Fannie Mae and Freddie Mac both have a host of resources that may help with tackling the changes to the form. Many vendors are also working with to provide assistance as well.