Recently, the Federal Housing Finance Agency (FHFA) announced that mortgage lenders will be required to include in loan packets the Supplemental Consumer Information Form (SCIF), which registers a borrower’s language preference, in order for those loans to be eligible for sale to Freddie Mac or Fannie Mae.
While the requirement may seem fairly innocuous, it’s likely the first of several new requirements lenders will need to consider when working with borrowers of Limited English Proficiency (LEP) in the future. While the concept of providing resources for LEP consumers is not novel; the requirement of those resources and the specification as to which resources must be provided, as a matter of law, will likely demand a substantial adjustment by lenders and servicers.
The current state of LEP compliance
LEP individuals are defined by the Office of Economic Impact and Diversity as “individuals who do not speak English as their primary language and who have a limited ability to read, speak, write, or understand English. These individuals may be entitled language assistance with respect to a particular type of service, benefit, or encounter.”
Until recently, mortgage lenders’ obligations to LEP borrowers were primarily governed at the federal level by The Equal Opportunity Act (ECOA) and the Unfair, Deceptive and Abusive Acts and Practices (UDAP) provisions of the Dodd-Frank Act. However, guidelines and requirements for the provision of specific resources were minimal.
In 2016, it emerged that the FHFA was planning to require a language preference question on the redesigned Fannie Mae and Freddie Mac Uniform Residential Loan Application (URLA). While the matter drew brief interest industry-wide, the plan was eventually nixed by the Trump Administration.
With the change of Federal administrations in 2021, it didn’t take long for the Consumer Financial Protection Bureau (CFPB) to signal that it would prefer to see more LEP services made available, particularly in the mortgage servicing and lending sectors. Accordingly, in January, 2021, the CFPB issued guiding principles for servicing LEP customers and guidelines for implementing those principles and developing compliance management solutions.
The statement further offered lenders and servicers guidance for mitigating ECOA, UDAAP and other legal risks. It touched on matters of what lenders may consider in determining whether or not non-English language services are required, as well as what factors financial institutions might consider in determining which products or services to offer in other languages.
Growing momentum at the state and federal levels
The purpose of the SCIF is to collect information about a borrower’s language preference as well as any homebuyer education or housing counseling the borrower received, so lenders can better understand borrower needs during the home buying process. Lenders must incorporate these changes and reporting requirements for loans with application dates on or after March 1, 2023 in order for the loans to qualify for sale to the GSEs.
With the requirement of the SCIF, FHFA has moved beyond guidance on LEP and into increased, tangible requirements. And while the law currently is limited to loans deemed saleable to the GSEs (a significant category in and of itself), developments at the state and federal level suggest more could be coming soon.
While a number of states have had LEP requirements for mortgage lenders and servicers in existence for some time, many are stricter than those at the federal level. And more states are adopting new requirements. For example, a Nevada law (Assembly Bill No. 359) which became effective in late 2021 requires that any person, who in the course of business, advertises and negotiates certain transactions in a language other than English must provide a translation of the contract or agreement that results from the advertising and negotiations.
The translation must include every term and condition of the contract or agreement. It’s not far-fetched to imagine that federal legislation or rule making could mimic or even build upon such language.
More LEP activity
The trend toward increased LEP requirements has reached the court system as well. A 2021 settlement between a large nationwide mortgage servicer and 48 state attorneys general regarding improper servicing allegations required the servicer to improve its practices regarding LEP borrowers. Among other consequences, the servicer was required to provide translation services and accept hardship letters and state and federal government forms in languages other than English.
The movement toward increased LEP requirements, in addition to the CFPB statement and FHFA mandate, has now come to the U.S. Congress as well, where H.R. 3009 would, if becoming law, create stricter LEP requirements including a standard language preference form; the requirement that servicers and lenders provide oral interpretation services and translated documents for identified LEP borrowers, and more.
The practical case for delivering LEP resources
The legislative and regulatory trend toward increased LEP requirements is only likely to increase — especially as the number of LEP borrowers in the marketplace is almost certain to grow. While it remains to be seen what additional LEP requirements are on the horizon for lenders and servicers, it should not be overlooked that, as the general American demographic changes, so too will the market for homebuyers.
The U.S. Census Bureau advises that almost 20% of the U.S. population today uses languages other than English in their homes. As far back as 2017, approximately 9% of the U.S. population would have been considered LEP borrowers — and the number is only rising.
American Latinos will comprise up to 70% of new homeowners within 20 years. The reality, by the numbers, is that more and more potential homebuyers will not be proficient with English as they attempt to navigate an already-complex home-buying process. It only stands to reason, then, that providing LEP resources will not just be a question of compliance, but a question of adequately serving the market — and succeeding — as well.
George Baker is the founder and CEO of Talk’uments.
Josh Weinberg is a partner with Talk’uments and president of Firstline Compliance, LLC.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
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