June 11, 2019

URLA is coming

Written by Bill Lehman

The new URLA is coming. But the status report, for July 2019, is decidedly Red.

Warning signs regarding the immensity of the forthcoming changes have been out for well over a year, yet it seems some lenders are just starting to realize the size and implications of the coming changes related to the new loan application – the Uniform Residential Loan Application (URLA, aka 1003 or form 66). This is the first of a short series of blogs exploring the benefits and challenges that lie ahead.

The URLA is undergoing a total redesign for the first time in 30 years and that is driving major changes in four areas:

  1. The application itself – its form, data elements, organization and fundamental operation
  2. Its corresponding data file, the Uniform Loan Application Dataset (ULAD)
  3. The agencies’ automated underwriting systems (DU, Fannie Mae’s Desktop Underwriter and LP, Freddie Mac’s Loan Prospector) submission, interfaces and files
  4. The retirement (at least not keeping current) of the Fannie Mae DU3.2 file, which has long been the industry de facto standard for transferring data.

The optional date is coming soon – July 1, 2019 – and the required date is February 1, 2020 – not very far away for a truly major change.

When the subject of the new ULRA came up at the recent National Advocacy Conference, a gentleman sitting at my table said, “My vendor is taking care of it.” When he didn’t smile and the rest of us figured out that he was serious, the branch manager and the lawyer at my table both asked him “You mean your vendor sets your policy for how to fill out the language preference and whether you let the MLO do that instead of the borrower?”

I saw two other issues myself, including “Which vendor?” and “Are all your counterparties ready? Does your entire process work end-to-end?”

On the issue of leaving things to your vendor, even small lenders are likely to be dealing with two or more vendors who not only have to be ready, their systems have to be tested together to make sure that your process works.

Below is a simplified snippet taken from CC Pace’s Reference Architecture, showing internal interfaces that are affected by the new URLA:

 

That’s a lot of moving parts undergoing substantial change that need to continue to work together. Let’s look at things from the perspective of relatively common test cases. It seems reasonable to expect that a POS submission to DU and an LOS submission to DU will both work. But in an equally common, but decidedly more complex scenario, when you take the application on the POS, transfer the loan to the LOS, where you rerun DU and then request a set of documents from your doc vendor, it’s not hard to imagine that initially something will break down, simply based off of different assumptions that were made.

On the issue of counterparty readiness, the reference architecture reveals even more counterparties and vendors that have to be ready and that you will have to test your process with:

 

But wait, there’s more! As far as the industry is concerned, not only do you and your counterparties have to be ready, but the entire ecosystem has to be ready, end-to-end. And the status for that is decidedly red.

Take the previous difficult test case and now extend it to a common industry chain. A broker starts the application, it closes with a mortgage banker who then sells it to a correspondent investor, who now runs Early Check or LQA on it, purchases it from the mortgage bank and then delivers it to Fannie or Freddie. It is known that this will not all work in July 2019.

Here is what I gleaned from the MBA ResTech call from May 16th, 2019:

  • Many individual vendors appear to be ready – but what that means is that they are ready to be tested in conjunction with other counterparties in the ecosystem
  • Not all components necessary for an agency correspondent transaction are ready
  • Correspondent Purchasers are starting to issue guidance that they will not purchase loans on the new URLA until 2020

It is CC Pace’s recommendation that every organization be extremely active monitoring the status of the new URLA both within and outside of their company; it is impossible that “our vendor is taking care of it all” is the right answer. This July through February represents a significant and much needed test period, not just for the systems and your process, but also for your compliance and training.

Some Correspondent Purchasers are issuing their own guidance on the matter. Have you?

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