Recently, the Federal Housing Finance Agency (FHFA) announced that mortgage lenders will be required to include the Supplementary Consumer Information Form (SCIF), which records a borrower’s language preference, in loan applications to that these loans can be sold to Freddie. Mac or Fannie Mae.
While the requirement may seem innocuous enough, it is likely the first of several new requirements that lenders will need to consider when working with borrowers with limited English proficiency (LEP) at the coming. While the concept of providing resources to LEP consumers is not new; the requirement for these resources and the specification of the resources that must be provided, by law, will likely require substantial adjustment on the part of lenders and managers.
The current state of LEP compliance
LEP people are defined by the Office of Economic Impact and Diversity as “people who do not speak English as their primary language and who have limited ability to read, speak, write or understand English. These individuals may be entitled to language assistance with respect to a particular type of service, benefit or meeting.
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 providing specific resources were minimal.
In 2016, it emerged that the FHFA planned to require a language preference question on the new Fannie Mae and Freddie Mac Uniform Residential Loan Application (URLA). Although the issue sparked brief industry-wide interest, the plan was ultimately rejected by the Trump administration.
With the change of federal administrations in 2021, it did not take long for Consumer Financial Protection Bureau (CFPB) to signal that he would prefer to see more LEP services made available, particularly in the mortgage and lending sectors. Accordingly, in January 2021, the CFPB published Guiding Principles for LEP Customer Service and Guidelines for the implementation of these principles and the development of compliance management solutions.
The statement further offered guidance to lenders and service providers to mitigate ECOA, UDAAP and other legal risks. He addressed questions about what lenders may consider when determining whether non-English language services are necessary or not, as well as factors financial institutions might consider when determining which products or services to offer in other languages.
Growing momentum at state and federal levels
The purpose of the SCIF is to collect information about a borrower’s language preference as well as any housing training or counseling received by the borrower, so that lenders can better understand the borrower’s needs during the home buying process. Lenders must incorporate these changes and reporting requirements for loans with an application date on or after March 1, 2023 so that loans can be sold to GSEs.
With the SCIF requirement, the FHFA has moved beyond the LEP guidelines and toward increased, tangible requirements. And while the law is currently limited to loans deemed salable to GSEs (an important category in itself), developments at the state and federal level suggest that more may soon be on the way.
While a number of states have had LEP requirements for mortgage lenders and managers for some time, many are more stringent than those at the federal level. And more and more states are adopting new requirements. For example, a Nevada law (Assembly Bill No. 359) that took effect at the end of 2021 requires that anyone who, in the course of their activities, announces and negotiates certain transactions in a language other than English must provide a translation of the contract or agreement that results from advertising and negotiations.
The translation must include all terms and conditions of the contract or agreement. It is not a stretch to imagine that federal legislation or rule-making might emulate or even rely on such language.
More LEP activity
The trend of increasing LEP requirements has also reached the judicial system. A 2021 settlement between a major national mortgage manager and 48 state attorneys general over allegations of improper service forced the manager to improve its practices regarding LEP borrowers. Among other consequences, the duty officer was required to provide translation services and to accept hardship letters and forms from state and federal governments in languages other than English.
The movement toward increased LEP requirements, in addition to the CFPB statement and FHFA mandate, has also arrived in the US Congress, where HR 3009, if passed into law, would create more stringent LEP requirements, including a form of standard language preference; the requirement that services and lenders provide oral interpretation services and translated documents for identified LEP borrowers, and more.
The practical case of LEP resource provision
The legislative and regulatory trend towards increased LEP requirements will only increase, especially as the number of LEP borrowers in the market is almost certain to increase. While it remains to be seen what additional LEP requirements are on the horizon for lenders and servicers, it should be kept in mind that as general US demographics change, so will the homebuyer market.
The US Census Bureau reports that nearly 20% of the US population today uses languages other than English at home. As of 2017, around 9% of the US population would have been considered LEP borrowers – and that number is only growing.
American Latinos will represent up to 70% of new owners within 20 years. The reality from the numbers is that more and more potential buyers are not fluent in English as they try to navigate an already complex home buying process. So it stands to reason that providing LEP resources will not just be a matter of compliance, but of serving the market well—and succeeding—as well.
George Baker is the founder and CEO of Talk’uments.
Josh Weinberg is a partner at Talk’uments and president of Firstline Compliance, LLC.
This column does not necessarily reflect the opinion of the editorial staff of HousingWire and its owners.
To contact the authors of this story:
George Baker at [email protected]
Josh Weinberg at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]