WASHINGTON, Aug 9 (Reuters) - The U.S. housing finance regulator said on Friday it had reversed a decision to require mortgage lenders to ask what language borrowers spoke because it was not among the “most relevant and useful” information.
The decision by the Federal Housing Finance Agency addressed a long-running industry concern, but received prompt pushback by consumer groups, who argued that requiring lenders to identify the primary language of borrowers will help ensure they can easily obtain mortgage assistance if needed.
The FHFA directed mortgage giants Fannie Mae and Freddie Mac, which it oversees, to hold off on using an updated mortgage application form after ordering several changes. Among those changes was scrapping the question on a borrowers’ preferred language, which instead will be placed on a voluntary additional form.
“FHFA’s position is that the purpose of the is to collect the most relevant and useful information and statutorily required data for a lender to originate a loan,” said an FHFA spokeswoman in a statement.
Lenders had been required to use the new form beginning Feb. 1, 2020, but that date has been pushed back due to the changes. No new deadline has been announced.
In 2017 and under previous leadership, the FHFA announced it would include the language question on the updated standard form for mortgage lenders, which was met with prompt pushback from the lending industry. Banks worried the question could lead borrowers to expect lenders to provide translation services, which in turn could create additional legal risk for firms.
But consumer groups cautioned that struggling borrowers who did not primarily speak English faced difficulties seeking relief during the 2008 financial crisis, and may have faced foreclosures that could have been avoided with better language services.
“We are deeply disappointed that FHFA has suddenly decided to reverse course,” said Linda Jun, Senior Policy Counsel at the Americans for Financial Reform Education Fund. (Reporting by Pete Schroeder Editing by Marguerita Choy)