FHFA says lenders must use form indicating preferred language
Mortgage lenders selling loans to Fannie Mae and Freddie Mac will be required to use the Supplemental Consumer Information Form as part of the application process effective March 1, 2023, the Federal Housing Finance Agency announced.
The form requires lenders to collect information about the borrower’s preferred language and document any homebuyer education or counseling received during the process.
“Collecting language preference and housing counseling information provides mortgage applicants with an additional method to inform lenders of their needs, enabling the industry to more fully respond to the nation’s growing diversity,” FHFA acting Director Sandra Thompson said in a press release. “These steps will contribute to an equitable housing finance system that welcomes all qualified borrowers.”
The Consumer Financial Protection Bureau lent its support to this effort. “The collection of applicants’ language preference does not violate the Equal Credit Opportunity Act or its implementing regulations,” said CFPB Director Rohit Chopra in the same press release. “The CFPB is eager to see advances in broader language access to better serve all borrowers.”
This change has backing from at least one segment of the mortgage industry.
“CHLA supports this new requirement, particularly the objective of gaining a greater understanding of the use of homebuyer education and counseling, which are important tools in increasing homeownership for minority and underserved borrowers,” the Community Home Lenders Association said in an emailed statement. “CHLA also appreciates that FHFA and the GSEs are giving adequate time to implement this new requirement.”
The CHLA represents small- and mid-sized independent mortgage bankers.
The Mortgage Bankers Association gave a more measured statement regarding this change.
“Now that the government has made lenders ask borrowers for the language preference, we hope that the work on building out a government-approved clearinghouse of translated key documents continues to be able to match the consumer expectations created by the new requirements,” according to a statement from Blake Chavis, the MBA’s associate regulatory counsel.
A coalition of consumer groups also put out a statement supporting the move. “We are pleased to see FHFA recognize the need to create a more inclusive home buying experience for borrowers with limited English proficiency,” said Sarah Bolling Mancini, staff attorney at the National Consumer Law Center.
It’s not just at origination that language barriers come into play. “At the origination stage, they may end up with a loan they don’t understand and can’t afford,” said Debby Goldberg, vice president for housing policy and special projects at the National Fair Housing Alliance. “When they need help from their mortgage servicer, language barriers may prevent them from getting assistance for which they qualify, putting them at risk of foreclosure.”
Other consumer groups represented in the statement were: Americans for Financial Reform, Consumer Action, Empire Justice Center, National Community Stabilization Trust, UnidosUS and National CAPACD
The FHFA added the SCIF on a voluntary basis (at one point it was known as the Voluntary Consumer Information Form) in October 2021.
As part of the 2018 Scorecard for Fannie Mae, Freddie Mac and Common Securitization Solutions, the regulator required support for access to credit for mortgage-ready borrowers with limited English proficiency, including a multi-year language access plan. In October 2018, the FHFA, Fannie Mae and Freddie Mac launched Mortgage Translations, a clearinghouse for Spanish language documents.
Besides English and Spanish, the SCIF is available in Chinese, Vietnamese, Korean and Tagalog. Borrower response to the preferred language question on the SCIF remains optional, the FHFA said.
Language preference has been a hot button topic going back approximately six years. The FHFA initially shelved putting a language question on a proposed revision to the Uniform Residential Loan Application in Aug. 2016 in order not to delay an intended roll-out at the start of 2018.
By the following May, the regulator reversed course and put a language question in as part of a request for public information on a new URLA. When the latest proposed URLA was introduced in October 2017, it included such an inquiry, against the mortgage industry’s wishes.
However, when the FHFA came out with its latest update as part of that revision process in October 2019, the language question was once again out of the form, although the GSEs looked to serve LEP borrowers in other ways. Since using the SCIF seems to meet its goals regarding LEP borrowers, the FHFA is apparently not planning to make any revisions to the URLA at this time.
Of the nearly 305 million people living in the U.S. in 2019, nearly 25.7 million admit to not speaking English well, according to the American Community Survey. By far the single largest group is the 16.3 million Spanish-speakers which said they spoke English less than well. Over 1.8 million Chinese-speakers fell into that category, followed by more than 875,000 Vietnamese-speakers, 572,000 Korean-speakers, 532,000 Tagalog-speakers and 438,000 Arabic-speakers.
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