5 Tips Before You Begin Working with Self-Employed Borrowers

A Quick Overview of the New URLA

The mortgage industry has been abuzz with talk of the new Uniform Residential Loan Application, more commonly referred to as the URLA or 1003. With its mandatory use date fast approaching (March 1, 2021 in case you’re wondering!), we’re here to give you a quick overview of the application including its purpose and what each section covers. We’re also linking other resources to give you a deeper dive when you’re ready.

 

What Is the Purpose of the New URLA?

The purpose of the new URLA is to demonstrate a borrower’s creditworthiness to the underwriter. Think of it as a story broken up into nine sections.

Depending on your company’s technology systems, a consumer might begin the application process through an externally facing portion of your product pricing engine (PPE) or point-of-sale system (POS). A good loan originator will not simply fill in the blanks on the document, but rather (s)he will ask additional related questions to get a fuller understanding of the consumer and be able to present the borrower in the most complete light. Failing to uncover issues initially will only lead to delays, problems, and stress in the future.

As you’re asking these probing questions, always take notes when the borrower is talking. Do not rely on your memory – it’s important to get all the information right the first time.

URLA Section Cheat Sheet

Here’s a quick breakdown of what each section of the new URLA covers. We’ll go into more detail below.

Section Covers
1 Identifies borrower, where they live, how they earn an income, and how much
2 Borrower’s assets and liabilities
3 Borrower’s existing real estate holdings
4 Loan and the property
5 Declarations about the property, the borrower’s funding, and financial history
6 Acknowledgements and agreements
7 Military service
8 Borrower’s demographic information
9 Loan originator information – i.e. about you

Additional Questions by URLA Section

Section 1 | This section identifies the borrower(s), where (s)he lives, how (s)he earns income and how much.

Below are some additional questions you should ask your borrower while completing section 1:

  • Have you frozen your credit? Many people have frozen their credit to prevent identity theft. If the credit is frozen and the borrower does not allow you immediate access to it, there will be potentially serious and long-term delays in the borrower being approved for a mortgage.
  • Do you know your credit score? There is a difference between a consumer credit score model and the credit score which is used by mortgage lenders. Often the consumer will know his/her consumer credit score and you should know that lenders use FICO score, not the score found on Credit Karma.
  • Do you have any serious derogatory events on your credit such as bankruptcies, foreclosures and/or judgements? They will be discovered eventually so you might as well deal with them upfront.
  • Do you anticipate any major life changes, such as change in employment or marital status, happening soon?
  • Do you have 25% or more ownership in any business? If the answer is yes, the borrower will be considered self-employed.
  • Can you prove where your income comes from and has it been a consistent amount? Do you anticipate any changes?

Here are two additional tips that relate to section 1 of the URLA:

  • When your borrower gives you documentation, look at it and anticipate any problems. Don’t simply put the document in the file and rely on the Processor or Underwriter to be the first person to review the documentation.
  • If you calculate income, show your work. Include your income calculation worksheet in the file so if anyone calculates a different income throughout the process, it will make it easy to see what caused the difference.

Section 2 | Covers Assets and Liabilities.

Assets refer to the source of funds for the down payment and closing as well as for the reserves. Ask these questions when reviewing assets:

  1. How long have the assets been there?
  2. Where did they come from?
  3. Are they a gift or a loan or neither?
  4. Can you document it?

Liabilities are how much the borrower owes. The credit report will typically reveal this information and auto-populate it into the application. It’s a best practice to have the borrower(s) review the liabilities to ensure they are all his/hers and to ask if there are any other liabilities not listed.

Section 3 | Deals with any real estate the borrower currently owns.

The main question to ask in this section is if the borrower is using income from a rental property, does he/she have a lease and/or proof of ownership and rental payments in the last year?

Section 4 | About the loan and property.

This section is straight forward. Note that it asks to reveal any additional grants of gifts, but you should have already asked for that information in a previous section.

Sections 5-7 | Declarations, Agreements, and Military Service

Often, Loan Officers go quickly through sections 5- 7. It is a best practice to review these sections with the borrower to ensure the information contained therein is correct. Furthermore, you need to know what each section contains in case the borrower asks a question.

Section 8 | Reviews the borrower’s demographic information.

Based on how the application is taken – in person, by phone, online – will determine how to complete this section. Please verify with your employer how they, as a matter of policy, complete this section.

You may be questioned as to why this information is being collected. Through working with your company, you should have an answer to that question for any borrower that asks.

Section 9 | About you.

This section requires your name, NMLS ID and signature along with a few other fields.


Now that you have a base understanding of the new ULRA, here are a couple more resources to help you further develop your knowledge.

Genworth On-Demand Webinar: 15-min visual overview of the new URLA

Genworth On-Demand Webinar: In-depth tour of the new URLA

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