Over the last few weeks, we have seen several questions regarding the new Uniform Residential Loan Application (URLA) and whether or not the new version must be used on March 1, 2021. Apparently, some consulting firms are implying that the new URLA must be used starting on March 1, 2021.
Our conclusion is that this statement is only partially correct.
Regulation B Application Requirements
As far as regulations go, the only application requirements are found in 1002.4(c) of Regulation B. This section, in short, requires a written application for any “application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling.” As seen in this requirement, the types of loans that require a written application are fairly limited (and the same as those that require GMI collection under Regulation B). Therefore, any other type of application, such as one for a second home, an auto loan, or an unsecured loan, don’t even have a requirement for a written application. (That said - and before you go and quit using written applications - there are many reasons why you do want to use a written application, rather than just relying on an oral application, for types of loans not specifically covered by this requirement of Regulation B.)
Now, this “written application” rule is the only application requirement of Regulation B. There are some model forms found in Appendix B to Regulation B. but the use of these model forms (which do include a version of the URLA) are not required or mandatory.
The result is that the March 1, 2021 implementation date has nothing to do with a regulatory requirement. It has to do with a secondary market requirement.
URLA Governance
The Uniform Residential Loan Application is actually a mortgage application form that is managed by Fannie Mae and Freddie Mac. These two agencies, known as Government Sponsored Enterprises (GSEs), require the use of the URLA for mortgage loans they purchase. The URLA is essentially the same document for both GSEs, but URLA has a different form number for each agency. The Fannie Mae version of the form is the 1003, which appears to be the most commonly known alternate name for the URLA, while the Freddie Mac version is Form 65.
The redesigned URLA was actually announced by the GSEs several years ago, but delays have continued to push back implementation. On January 1, 2021, the new URLA could be used by any lender wanting to use the revised version, while the GSEs have made the use of the revised URLA mandatory, beginning on March 1, 2021.
Who Must Use the Revised URLA on March 1, 2021?
As the URLA is a form required by the GSEs and other investors on the secondary market, lenders who sell mortgage loans on the secondary market must use the new, revised URLA no later than March 1, 2021. However, loans that will not be sold on the secondary market, such as those loans that will only be retained in a lenders portfolio, would not require use of the revised URLA on March 1, 2021 - as portfolio loans have no such requirement to use the URLA.
Therefore, our conclusion is that the URLA is not necessarily required to be used by every lender on March 1, 2021. It should be noted, however, that while portfolio loans technically do not require the use of the new URLA, lenders may choose to utilize it based on simplicity of operations, logistics in using third-party software, or to ensure salability in the event the lender attempts to sell the loan in the future. In other words, it is a good idea to begin using the URLA on March 1, 2021, even though it technically isn’t required for portfolio loans that will not be sold in the future.
NOTE: We are not attorneys and this should not be taken as legal advice. Seek legal counsel. It should be noted that we intend no ill will in this article toward other consulting firms, many of whom we greatly admire. Rather, we have made a lame attempt at humor by mimicking a “fact check “ article and applying it to a real regulatory compliance question we have received. If you had to read this to understand what we were attempting to do, it appears we failed in our efforts. Please accept our apologies.
