FHA to require its lenders to use language preference form

The Federal Housing Administration will start requiring mortgage lenders to use the same borrower language preference form as the government-sponsored enterprises.

This document, the Supplemental Consumer Information Form, is currently supposed to be presented to the borrower if the loan is to be acquired by Fannie Mae or Freddie Mac, although the consumer can elect not to fill it out.

All originations since March 1 are required to include this form, which both Fannie Mae and Freddie Mac refer to as the 1103, in the file.

However, a proposed rulemaking by the Federal Housing Finance Agency would further codify the SCIF requirement, expanding the scope of the original announcement and not for the better, the Mortgage Bankers Association said in a comment letter sent on June 26.

"The experience of using the SCIF is new, and we should allow time to see its benefits before making its use a regulatory requirement," the MBA letter said. "The assertions made in the rule about the usefulness of the data are unfounded given how little time has passed since the SCIF has been in widespread use."

The FHA announcement conforms with the FHFA's initial statements on the use of the SCIF form, allowing the borrower to provide all, some or none of the information requested.

"The SCIF has already been adopted for conventional mortgages and we believe that its use is even more important for FHA-insured mortgages, given FHA's outsized role in providing access to mortgage financing for underserved populations," said Deputy Assistant Secretary for Single Family Housing Sarah Edelman in the press release. "This announcement complements the work we recently completed to provide translated versions of mortgage documents and homebuyer education resources."

The FHA will require a SCIF to be submitted with all loan applications dated on or after Aug. 28.

The agency recently added Chinese, Korean, Spanish, Tagalog, and Vietnamese language versions of more than 30 single family mortgage documents associated with its programs.

Of the nearly 305 million people living in the U.S. in 2019, nearly 25.7 million said they are not proficient in English, according to the American Community Survey. The largest group is the 16.3 million Spanish speakers. Over 1.8 million Chinese speakers and more than 875,000 people whose primary language is Vietnamese make up the next two largest groups.

The National Consumer Law Center supports both the FHFA proposal as well as the FHA's move.

In its June 26 comment letter to the FHFA, the consumer group calls for servicers to be required to use a "SCIF-like form" to get their customers' language preference.

Similarly, the NCLC supports use of the form across all segments of the process when it comes to FHA-insured mortgages.

"Identifying language preference is an important first step toward serving borrowers with limited English proficiency," said Nicole Cabañez, Skadden Fellow at the NCLC in a press release. "We celebrate this tool for allowing borrowers to express their language needs in an efficient, systematic way, while also recognizing that lenders and servicers also must be required, not merely encouraged, to respond to the needs of LEP consumers with concrete steps to increase access to written and oral assistance."

The NCLC response also asks the Federal Housing Finance Agency to require lenders and servicers to obtain language preference information for loans Fannie Mae and Freddie Mac purchased prior to March 1.

Furthermore, "FHFA should also require the enterprises to encourage, if not require, lenders and servicers to create, maintain and regularly update their own language access plans," the NCLC letter said. "These plans will establish a roadmap whereby lenders and servicers consider the languages most commonly spoken by their [limited English proficient] mortgage customers, the most important information for these customers to understand, and steps they can take to improve language access given available resources and costs."