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Lenders pan language-question query

Mortgage banking groups this past week came out strongly against a resurrected proposal to include a language-preference question in the standard form used to apply for the most popular home loans.

Major banking groups and industry lobbyists say including such a question in applications for the loans conforming to Fannie Mae and Freddie Mac’s guidelines — which now represent more than half of all new U.S. home loans — could open a Pandora’s box of legal problems.

regulhmdaThe Federal Housing Finance Agency (FHFA), which tightly controls Fannie and Freddie as its regulator and conservator, intended to insert a question last year about language preference as part of its revisions to the application form. FHFA ultimately decided not to go forward with the change after the banking lobby raised objections.

FHFA has continued, however, to mull a number of options to help people with limited English skills and closed a public-comment period on Monday seeking feedback on options.

The industry has the same concerns as before. In a letter to the FHFA, the Mortgage Bankers Association, the American Bankers Association and two other groups said the move could expose lenders, loan servicers and the end investors to lawsuits. It may also raise the costs for borrowers.

Banking groups are worried that if borrowers are asked their language preference, it will create the legal obligation to serve them in their preferred language. Loans often get sold a number of times. This obligation could also extend down the chain to the loan servicer and affect how the loan is viewed in the secondary market where mortgages are securitized.

Loan originators have to follow strict disclosure rules. It is a paper-heavy process. Practically none of the forms have been translated into other languages.

Pete Mills, a senior vice president with the Mortgage Bankers Association (MBA), said the industry is concerned about the legal liability.

“If I have a loan officer who negotiates or talks to a consumer in their preferred language, it is uncertain how far we have to go in the rest of the transaction to accommodate their language preference,” Mills said. “Do all the disclosures have to be in that language? Do we even have access to those disclosures? A lot of things are in Spanish, but there are several hundred languages that are spoken in the United States. Does it extend to Mandarin? So, there is uncertainty about what other aspects of the transaction need to be negotiated or discussed.”

Mills also told Scotsman Guide News that the industry strongly supports helping borrowers with limited language skills, but that could be better accomplished by creating a nationwide database of resources that includes translation services.  

"A year ago when they pulled this question back, we formed a limited-English proficiency working group internally at the MBA," Mills sad. “The interest from our lenders was extremely high. They want to know what resources are out there. They want to be able to help consumers, but they also want to know what the legal certainty of what the rules of the road are for doing that.”

Civil rights groups support change

Civil rights groups and advocates are urging to FHFA to include the question, however. Loan files typically don’t contain any information about the borrower’s primary spoken language. Advocates say that borrowers with limited English are more prone to be victimized or pushed unnecessarily toward a foreclosure.

“Mortgage servicing is all about communication,” said Brian Marshall, counsel for Americans for Financial Reform. “If you don’t know what language someone can best communicate in, it is very difficult to communicate with them,” he told Scotsman Guide News. “We think it is best for the mortgage industry to know up front how to communicate with their customers, and how to best contact them, to make the servicing relationship as easy as possible. “

Marshall also said the legal risks of merely asking the question have been overblown by the industry. FHFA is proposing to include a disclaimer that explicitly states that the lender is under no obligation to serve the borrower in their preferred language. Lenders are already under the legal obligation not to originate a loan to a person who doesn’t understand the terms.

“In the vast majority of cases, it is going to be clear to someone through the process if the borrower can’t communicate in English,” Marshall said. “So the idea that just by asking the question is the only way that that obligation would be triggered just doesn’t make sense to us. Originators know right now whether their customers can communicate in English or not. We are just asking that the industry record that information.”

Larry Platt, a partner with the global law firm, Mayer Brown, however, said the industry has raised legitimate concerns. The question does potentially create an obligation on the lender, and down the chain.  

“What is the purpose of asking the question if you are not going to do anything with the information?” Platt said. “Once you ask it, do you back yourself into a corner?”

Platt also noted that it was unusual that the the FHFA would be mulling this change in the twilight of FHFA Director Mel Watt's tenure. Watt's term will end at the end of next year, and President Donald Trump will appoint a new director.

"This isn’t the kind of question that you would expect Republicans to want to be asking. Interesting question is why is this happening now? Is it the last hurrah?" 


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