Several major banking groups have
come out against a proposed change that would require lenders to ask borrowers their
language preference when applying for the nation’s most popular home loans.
The Federal Housing Finance Agency (FHFA) recently
redesigned the Uniform Residential Loan Application (URLA) form, which all borrowers must complete to qualify for a conventional loan that is to be purchased by Fannie Mae and
Freddie Mac. The new form is slated to go into use later this month, but several
banking groups say the FHFA has made a last-minute change at the urging
of numerous consumer-advocacy groups to include the language-preference question.
In a letter this week to FHFA Director Mel
Watt, eight trade associations, including the Mortgage Bankers Association and
the American Bankers Association, said the change hasn’t been thought out
adequately and could have major consequences for the industry.
"At this point, the inclusion of
the subject question would only create confusion, uncertainty and potential
liability," the letter said. "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."
Also co-signing the letter were the
Independent Community Bankers of America, the Consumer Bankers Association, the
Consumer Mortgage Coalition, Credit Union National Association, the Housing
Policy Council and the National Association of Federal Credit Unions.
The letter raises several concerns. If asked a language preference, borrowers
might reasonably expect to be assisted with translation services, raising questions about a lender’s legal responsibilities under federal
disclosure rules. Lenders may also be exposed to liability under federal
anti-discrimination laws, for example, via claims that a lender is trying to uncover
information about the borrower’s race and ethnicity. The trade groups also were
concerned about costs should companies have to provide language services for
Current federal rules for government mortgages
also do not spell out for lenders what to do if the borrower indicates another
language preference, the letter said. The trade groups also noted that an estimated
350 languages are spoken in the U.S., and there are no accompanying mortgage forms to
accommodate other languages.
The trade groups also said that information
on a borrower’s language preference would be better gathered through other
databases by the U.S. Census Bureau and other national housing surveys.
The FHFA added the question in response to a request from numerous consumer-advocacy groups that argued
it would be a good first-step in helping companies better serve borrowers whose first language is not English. In late March, a coalition of more than 120 consumer-facing groups,
led by the National Housing Resource Center, the Leadership Conference and
Americans for Financial Reform, urged the FHFA to include the language-preference question. The
letter also noted that these borrowers were often taken advantage of during the
era of predatory lending, and this is a rare opportunity to add a useful data-tracking tool. The URLA form hasn't substantially been revised in 20 years, the groups
"There are many problems in the mortgage system today and
there have been for years because the people who don’t speak English well don’t
get treatment in language that will help them communicate properly," said Bruce Dorpalen, executive director of the National Housing Resource Center. Dorpalen mentioned the case of a Korean native speaker who missed out on a chance to get a substantial loan modification because of the language barrier.
"This is just a flaw in the system, and when you talk to lenders, talk to
servicers, what they say is that we don’t know what language people like to
communicate in," Dorpalen said. "If you can capture that information from day one when people
are making mortgage applications, then at least you have the information. This
doesn’t require the lender to do something. All it is doing is giving the kind
of information they need."
Dorpalen also said that meetings are ongoing with FHFA and other federal agencies to develop rules that would be helpful to lenders in serving people whose primary language is not English.
"They [the mortgage industry] really should embrace this," Dorpalen said. "I know they sell in
language, and they need to figure out how to originate and service in language."
An FHFA spokeswoman said the agency had no
comment on its inclusion of the language-preference question.