On May 3, 2022, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Government Sponsored Enterprises [GSEs]) will require lenders to use a new Supplemental Consumer Information Form (SCIF; Form 1103). This form will be required in the loan file for conventional loans sold to the GSEs with application dates on or after March 1, 2023. This announcement was the latest in a saga of developments surrounding the inclusion of a language preference question on the mortgage application that started back in 2016.
What is the SCIF?
The SCIF’s stated purpose is to collect information on homeownership education and housing counseling and/or language preference to help lenders better understand the needs of borrowers during the home buying process. The SCIF is related to a large multi-language resource initiative that the GSEs have been working towards for some time. The language preference question, in particular, has been a hot topic in the mortgage lending industry. The SCIF also includes home ownership education/counseling questions that have been revised to collect the format of the instruction and the identity of the provider of the counseling services to the consumer.
The May 3rd release also announced the publication of translations for several GSE documents in five different languages, namely Spanish, Korean, Tagalog, traditional Chinese, and Vietnamese. The creation of these translations is part of an online clearinghouse of various resources comprised of both GSE materials and materials from other government agencies to assist lenders, servicers, and housing counselors in providing services to borrowers with limited English proficiency. The SCIF form does disclose that the selection of a preferred language does not guarantee that it will be available to the borrower and includes the disclosure: “Please be aware that communications may not be available in your preferred language.” Presently there is no requirement that the newly translated forms be used.
What is the purpose of the SCIF?
In breaking down the purpose of the SCIF, we look at both Regulation B and Regulation C and their relationship to the Uniform Residential Loan Application (URLA) and the SCIF.
Regulation B implements the Equal Credit Opportunity Act (ECOA) to promote the availability of credit to all credit worthy applicants without regard to race, color religion, national origin, sex, marital status, or age within the applicant’s capacity to contract (12 CFR § 1002.1[b]). To accomplish this, 12 CFR 1002.5(b) applies limitations on the information about race, color, religion, national origin, and sex that a creditor may inquire about during a credit transaction. However, 12 CFR § 1002.5(a)(2) and § 1002.13(a) clarify the rule to allow for the collection of information by a creditor when required by regulation, order, or agreement, expressly when a creditor receives an application for credit for the purchase or refinance of a principal residence.
In contrast, Regulation C implements the Home Mortgage Disclosure Act (HMDA) [12 USCA §§ 2801 – 2811] as implemented by Regulation C, in contrast, which was designed to collect this information for the following purposes:
- To help determine if financial institutions are serving the housing needs of their communities.
- To assist public officials in distributing public-sector investments to attract private investment to areas where it is needed; and
- To assist in identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes (12 CFR § 1003.1[b]).
Due to the dual and conflicting nature of these two regulations, compliance depends on guidance in merging the two regulations. Specifically, as a result of the conflict found in Regulation B’s dual purpose of prohibiting creditors from collecting certain information about loan applicants while collecting that same information for the government, and Regulation C’s collection of this same information for public dissemination. One example of this conflict is found in Regulation C (12 CFR § 1003.4[a]). This is one of the primary rules relied on for the language preference question that will be mentioned later on. The premise is that when the loan applicant is asked to provide their race in an application, this information must be collected based on the applicant’s surname or based on visual observation if the applicant does not wish to voluntarily disclose. In contrast, Regulation B limits the creditors ability to identify the ethnicity, race, and sex of the applicant (see 12 CFR § 1002.4). These limitations are extended to language, especially if it would discourage a reasonable person from making or pursuing an application. In spite of its limitations, this is also one of the founding reasons for the FHFA’s strategic initiative that led to the development of the language preference question. To navigate the complexity of the conflict the CFPB puts forth the following guidance (12 CFR Pt. 1002, Paragraph 13[c] – 1):
The disclosure to an applicant regarding the monitoring information may be provided in writing. Appendix B provides data collection model forms for use in complying with § 1002.13 and that comply with § 1002.13(c). A creditor may devise its own disclosure so long as it is substantially similar. The creditor need not orally request the monitoring information if it is requested in writing.
Section X of 2009 and 2004 version of the Uniform Residential Loan Application (URLA) was used to collect this demographic information prior to the proposed revised 2018 URLA which was further revised in 2019 following the 2018 HMDA changes. 2018 HMDA Changes were promulgated, under both Regulations B and C. The ethnicity and race of the applicant was collected using aggregated categories (e.g., ethnicities were lumped into five general categories of American Indian, Native Hawaiian, Asian, White, or Black). However, under the 2018 HMDA changes, this information is collected using disaggregated categories (e.g. instead of simply reporting “Asian”, an applicant can report “Asian – Filipino”; see 80 FR 66187 – 66194  for details).
Sections X of the 2009 and 2004 version of the URLA only permitted an applicant to report aggregated information – thus, use of Section X was no longer sufficient to comply with Regulation C, necessitating further revision to the URLA. In addition, the FHFA’s strategic plans published in March 2016 on diversity and inclusion noted that there were challenges related to access to credit for those with limited English proficiency.
The proposed 2019 revisions to the URLA were intended to address the new regulatory environment and the goals of the FHFA as such the new Section 7 included, among other things, a language preference question, and questions about homeownership education and housing counseling. Industry feedback and controversy regarding additional regulatory burdens eventually led to the removal of the new Section 7 from the proposed 2019 revisions to the URLA.
The information that was removed from the proposed Section 7 was split into the Voluntary Consumer Information Form (VCIF) and the Demographic Information Addendum. The Addendum’s original purpose was to address the reporting requirements for the HMDA changes which were published in 2018 as the revised URLA, in order to support these new reporting requirements, but would not be available until July 2019. This ensured that loans would remain saleable to Fannie Mae and Freddie Mac and also insurable by FHA, VA, and USDA. Meanwhile, the Consumer Financial Protection Bureau (CFPB) issued amendments to Section 13 of Regulation B to permit creditors to collect either aggregated or disaggregated ethnic/racial information (82 FR 45680 ). The use of the VCIF was voluntary so that the CFPB could determine whether a safe harbor was necessary for the use of the form. Finally, on October 26, 2021, the VCIF was reorganized as the SCIF (form 1103).
On May 3, 2022, the FHFA and the GSEs announced that the SCIF had been updated again, and it had been modified to also collect data on homeownership education. Specifically: what type of format the instruction was provided in, if it was a HUD-approved agency, who provided the counseling, and when the counseling was completed. The language preference question now reflects an option to select a preferred language from a list of English, Spanish, traditional Chinese, Vietnamese, Korean, Tagalog, or allows for providing a language if it is not available in the list. Optionally, the borrower may elect to not respond.
The many issues involved in originating mortgage loans in a language other than English, including the complexity of federal, state, and local laws, have all contributed to continuing changes surrounding the SCIF. Its history goes back to 2016, and it has had many changes along the way.
- March- 2016-. Following the progress report in March of 2016 where the FHFA announced that resolving language access difficulties for limited English-speaking Americans was part of their strategic goals in expanding diversity and inclusion. https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Progress-Report-2015-Scorecard.pdf
- July 2017- The FHFA published the policy research for the preferred language question proposing the inclusion of the language question. https://www.fhfa.gov/PolicyProgramsResearch/Policy/Documents/Round-7-SanFran_7-29-16.pdf
- August 2016 – There was immediate controversy surrounding the preferred language questions. With a host of questions being raised, the FHFA sought public input, and the preferred language question was tabled while data was collected. https://www.cfsreview.com/wp-content/uploads/sites/13/2019/08/FHFALetter.pdf
- October 2017 – Further influenced by the 2018 HMDA changes, and in response to public feedback, the FHFA published that they would be adding the optional preferred language question to the redesigned URLA, replacing Section X with a new Section 7 “Demographic Information,” which enables borrowers to select a preferred language other than English. https://www.fhfa.gov/Media/PublicAffairs/Pages/Preferred-Language-Question-to-be-Added-to-the-Redesigned-Uniform-Residential-Loan-Application.aspx
- August 2019 – It was announced that the preferred language question, as well as the home ownership education and housing counseling question, would not be included in the revised URLA at all, but they would be included in a separate document known as the VCIF. https://sf.freddiemac.com/articles/news/fhfa-provides-new-requirements-for-redesigned-urla
- February 2020 – The optional use period for the redesigned URLA was postponed to allow the industry to make the changes following the removal of questions from Section 7 which included the language preference questions and the homeownership education/home counseling question which were moved to the VCIF. The remaining questions from Section 7 would be placed on the new demographic’s addendum, also including the military service question. https://sf.freddiemac.com/content/_assets/resources/pdf/press-release/urla_ulad_announcement.pdf
- October 2021 – The GSEs redesigned the VCIF and introduced what we now know to be the SCIF. The announcement indicated that the GSEs were not going to be requiring use of the SCIF. https://singlefamily.fanniemae.com/media/29781/display
- May 2022 – COVID economic recoveries data collected from many homes reflected that still remained in pending foreclosure following the expiration of the Cares Act reflected a disproportionate number of these homes were owned by borrowers with limited English proficiency. Many mortgage servicers did not record the language preference of borrowers despite the availability of the option. Based on this data, the GSEs announced that even though they had previously communicated that it would not be required, the SCIF would be required in the loan file for new conventional loans sold to the GSEs with application dates on or after March 1, 2023. https://sf.freddiemac.com/content/_assets/resources/pdf/press-release/may-3-joint-gse-announcement_scif.pdf