Give consumers a priceless asset: more time. Endless errands, work tasks and countless obligations big and small chip away at their free time and fill their schedules. Applying for a loan shouldn’t add to that.
To power a faster, better mortgage experience for consumers, Freddie Mac’s Loan Product Advisor asset and income modeler (AIM) continues to evolve, now including paystub data in addition to direct deposit data for income assessment. These cost-saving efficiencies provide increased rep and warrant coverage while continuing to meet Freddie Mac’s strong credit underwriting standards.
Open banking drives new mortgage capabilities
Using consumer-permissioned data from trusted third-party providers like Mastercard (with some services delivered through Finicity, a Mastercard company), direct deposit plus paystub increases the confidence in income calculations by matching digitized paystub data to borrower direct deposit history sourced from trusted providers.
Mortgage Verification Service (MVS) supports this new AIM capability by providing direct deposit transaction data paired with digitized paystub data to fuel this innovative, data-driven approach. It identifies the income stream that matches the paystub, delivering accurate risk assessment results.
Assets, income and employment verifications are vital to mortgage lenders looking to verify borrowers’ finances. However, between unreliable results, miscommunications and paperchases, verifying assets, employment and income can be cumbersome. MVS helps borrowers get faster approvals with fewer conditions up front, allowing them to close and move into their homes faster.
“Partnering with Mastercard ensures we can deliver the best tools and insights the industry has to offer. This collaboration will assist lenders with quickly and easily obtaining income verification.”
Daniel Miller, Freddie Mac Single-Family Director of Strategic Technology Partnerships
MVS can help lenders:
- More easily assess borrower capacity/automate income calculations.
- Reduce frustrations caused by paper submissions and re-asking for documentation to verify assets, income and employment.
- Remove subjectivity and manual errors in processing and underwriting.
- Lower risk and probability of fraudulent activity.
- Increase referrals by providing a better borrower experience.
Efficient assessment
AIM leverages consumer-permissioned data from open banking providers like Mastercard to better identify pay deposits using accurate and verifiable data that meets Freddie Mac’s underwriting standards. Lenders can automate the manual processes of assessing borrower assets, income and employment. This can improve the success rates for identifying income and employment by reading information provided on a paystub and verifying income transactions within a borrower’s bank account.
“Partnering with Mastercard ensures we can deliver the best tools and insights the industry has to offer,” said Daniel Miller, Freddie Mac Single-Family Director of Strategic Technology Partnerships. “This collaboration will assist lenders with quickly and easily obtaining income verification.”
How it works
Previously, direct deposits to a consumer’s bank account would qualify for rep and warrant assessment. With enhanced direct deposit and paystub capabilities, a borrower or a loan officer can upload a paystub and the technology will match the data on that paystub with the deposits from the borrower’s asset report, boosting the rep and warranty success rates and income gross-up.
The asset report can include 24 months of direct deposit transactional history and also includes income streams identified by the open banking platform. Now, with the added paystub capability, Mastercard can add a paystub report that can provide greater success assessing income through direct deposits.
The paystub report generated through MVS has two sections; the top section includes digitized paystub information. The bottom section is up to 24 months of income stream credit transactions only. These income streams are reconciled with the deposits shown on the asset report.
As an added bonus, the reduced cost of implementing MVS is reflected directly in the balance sheet. On average, up to 7 days can be cut off the processing time for each loan. The hours formerly spent by loan officers chasing down borrower documents are invested in higher-return work activities such as marketing and sales to drive additional loans. The new AIM capability will be available to Freddie Mac-approved Sellers using Loan Product Advisor beginning June 7, 2023. MVS is available via direct integration and ecosystem integrations including SimpleNexus & ICE Technology and Order Reports Service in the Client Hub today.
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In today’s digital age, consumers have come to expect experiences that are quick, convenient and easy to use. These expectations are exerting more pressure on the mortgage lending process and causing many lenders to rethink their current workflows and customer experience.
Here, we discuss the effects that open banking and real-time data are having on mortgage lending, and how industry innovators are using this data to streamline homebuying for both lenders and borrowers. Join us to talk about the impact of Freddie Mac’s release of automated assessment of direct deposit income, insights into how the leveraging of new data sources will impact future underwriting and how lenders like Intercoastal Mortgage are already utilizing these tools to win in a tightening market.
To learn more, visit https://www.finicity.com/mortgage. To request a demo, visit https://www.finicity.com/mortgage-demo.
Getting a mortgage has traditionally been a long and challenging process. Customers have had to dig up paystubs and bank statements to hand off to loan officers. Loan officers and processors then manually uploaded the paperwork into the lender’s database for review and then hope for the best. When a borrower sent an incomplete document or a processor made an error in data transposition, it could delay the loan approval process by days, even weeks.
But in today’s climate of rising interest rates and low inventory, those long wait times have gone from just annoying to potentially costing house hunters the chance to close on the homes they desire. For example, serious buyers should arrive at each showing with a pre-approval letter in hand, in order to be competitive. Even those just browsing will need to move quickly if the right house comes up. And those refinancing—yes, even as rates are climbing, there are borrowers who could save by refinancing—must act fast to nail the lower rate in place.
These inefficiencies and delays were troubling to Guaranteed Rate, who, as the second-largest retail lender in the U.S., has been helping to make the mortgage process easier since 2000.
Two years ago the company decided to look into taking its underwriting process digital. There was a lot on the line. The mortgage industry sets a high bar for the financial data used to underwrite loans, requiring documents from verified institutions. What’s more, borrowers share some of their most sensitive financial information to secure a loan. Guaranteed Rate was committed to protecting the consumer’s privacy and financial data.
What Guaranteed Rate came up with is a platform that enables customers to go online or use a mobile app to grant permission for the lender via a third-party service to access their financial and payroll accounts. That lets the lender quickly and accurately verify assets, income and employment.
If everything checks out, the lender can give the borrower a quick thumbs-up. In some cases, that’s all the data the lender needs for the mortgage to go forward. This digital verification process can cut up to eight days off the underwriting process. “From an efficiency standpoint, our underwriters don’t have to manually verify income and assets for every loan, so we can scale up,” says Brad Lando, Senior Vice President of Strategic Development, Guaranteed Rate.
The company protects borrowers’ sensitive data by using Mastercard’s open banking platform. When a borrower grants a lender access to their data, Mastercard’s technology issues a token. The token allows the lender to see the data, but never house it. Nor does the lender receive login credentials. The risk of those credentials being hacked during the mortgage process is reduced, and the customer gets a better experience.
Another advantage is that borrowers can grant ongoing account access for prolonged periods of time, such as 60 days. That means the lender can refresh the data as needed without having to go back and ask for renewed permission to track down more documents, alleviating the burden on the consumer. “It’s cut down on risk, in addition to bringing a better customer experience,” says Lando.
Loan officers and processors have been quick to adapt to this digital-first method. The automated verification system allows them to sign off faster on more straightforward loans, which frees them up to focus on the more complicated ones.
And while there’s still some trepidation among consumers, they’re also starting to see the benefits. When offered a choice to manually upload their documents or grant permission for the lender to pull their information, 83% of borrowers who chose the digital path said their loan processing time was shorter than they expected it to be, or that it met their expectations.
As digital verification becomes more prevalent, the mortgage process will speed up, from application to close. And that means more people can look forward to a smoother process on the way to landing in the homes they want to live in.
GSE-approved income, employment and asset verifications lead to a better mortgage experience for applicants, homebuyers, loan officers, underwriters and processors. Mastercard’s Emily Flinders walks you through our Mortgage Verification Service, where consumers can safely and simply connect their financial data to build a better mortgage.
Revised July 1, 2022
This week, Freddie Mac announced the latest Loan Product Advisor® (LPASM) enhancement that includes on-time rent payments as part of the company’s purchase determinations.
Mastercard, a designated third-party service provider for Freddie Mac, is excited to provide two reports for lenders that include rent payment history.
Our Mortgage Verification Services (MVS) product provides the consumer-permissioned data necessary for LPA’s rent payment history credit assessment with no setup required for the lender. If you’re already using an MVS asset report, you will automatically send the data necessary for a rent assessment.
Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity), is a designated service provider that offers a digital, single-vendor solution for assets, income and employment through both Freddie Mac and Fannie Mae. By automating the asset and income assessment process, we can also provide transaction data for rent payment history, direct deposits and 10-day pre-closing reports for employment verification. These solutions help to streamline lenders’ loan approval process and increase homeownership opportunities to qualified borrowers.
Rent Payment History in Lender Credit Decisioning
By virtue of sheer numbers, millennials are defining the trends of today’s housing market. The age group now accounts for 43% of all homebuyers so far in 2022, according to a new report by the National Association of Realtors. With approximately one-third of this demographic being credit invisible, there’s an opportunity to incorporate additional data sources to help establish creditworthiness and the ability to repay the loan. The integration of rent payment history into the mortgage lending process can be helpful to first-time homebuyers who have a strong track record of on-time rent payments, creating a new path to homeownership while still promoting safe lending.
In addition to this week’s announcement from Freddie Mac, Fannie Mae has included rent payments in their automated mortgage credit decisioning process in Desktop Underwriter® (DU®) since September 18, 2021. Fannie Mae identified recurring rent payments in bank statements and transaction data as a factor which could deliver a more inclusive credit assessment.
Fannie Mae said 17% of applicants who have not owned a home in the last three years and who did not receive a favorable mortgage recommendation could have instead received an “approved” or “eligible” recommendation if their rental payment history had been considered.
To take advantage of the rent payment history feature, Mastercard provides a Verification of Asset and Income (VOAI) and a Verification of Assets (VOA) report through its Mortgage Verification Service (MVS) that includes 12 or 24 months of transaction data that Freddie Mac and Fannie Mae can use to identify rent payment history that may provide a more favorable credit assessment.
If they are using the VOA report, lenders have the freedom to access either two or 12 months of data to satisfy their own underwriting requirements. The reports can be called with a direct API or are available currently in ICE Encompass and Encompass Consumer Connect, as well as the SimpleNexus mortgage point-of-sale (POS) platform.
Integrated with Freddie Mac and Fannie Mae Systems
Mastercard is a service provider for Freddie Mac’s automated underwriting system, LPA, which automates the assessment of borrower assets, income and employment using LPA asset and income modeler (AIM). By leveraging the expertise of service providers, AIM helps to deliver a simpler, more efficient loan origination process.
Fannie Mae’s DU validation service also accepts our mortgage verification services to independently validate borrower assets, income, and employment data—providing Day 1 Certainty® on validated loan components. By digitally validating secure third-party data through DU, you can help eliminate the paper chase and help get your borrowers approved quicker.
Learn more about Mortgage Verification Services here or request a demo from one of our open banking experts.
According to a recent study from Mastercard, consumers say obtaining a mortgage is a serious pain point in an already painful homebuying process. The survey shows that 89% of homebuyers find the mortgage process to be equally or more stressful than the homebuying experience.
Borrowers whose lenders used digital mortgage verifications were less likely to say the loan process was the most stressful part of buying or refinancing a home, and 83% of respondents using digital verifications said their loan processing time was shorter than expected or met their expectations.
As a designated third-party service provider of Freddie Mac, Finicity, a wholly owned subsidiary of Mastercard, offers an integration of its open banking data and Mortgage Verification Services (MVS) with AIM that allows clients to automate the capacity assessment using consumer-permissioned data, direct deposit account data and work history. In the case of income, lenders can now look at direct deposit history to verify income.
Click here to read the MReport article by Andy Sheehan, EVP Open Banking about how Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity) is moving the mortgage process into the digital future.
Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity) offers pre-close reports that provide just the right data that GSEs need for 10-day verification of employment. Today, Freddie Mac announced the acceptance of our Verification of Employment (VOE) Reports.
In adding the VOE Payroll and Transactions reports to our Mortgage Verification Services (MVS) product, we have enabled lenders to receive only the data GSEs require for the 10-day verification. Lenders can use these reports to view only your borrower’s employment status, rather than refreshing the full reports that contain more data than required for an employment verification. This minimizes the introduction of new income data or other redundant and unnecessary underwriting changes that could delay the loan closing or cause additional work.
The two available reports provide different types of information. The VOE Transactions report contains 120 days of refreshed transactions with dates and description, but no amounts or totals so income is not reassessed. It shows the latest direct deposits in the income streams, to confirm the borrower is still being paid on their regular cadence.
Another option is the VOE Payroll report. This contains only employment status and details—no income or other data—so lenders can see that the individual is still employed according to their payroll provider.
These two reports are part of MVS at no extra charge and are currently available for lenders connecting directly to Mastercard and through Ice Mortgage Technology.
The VOE Transaction and Payroll reports can help lenders improve accuracy and simplify the process of verifying employment within ten days of closing, removing more friction from the loan origination process without increasing risk. With one click, a GSE-accepted VOE report is available in moments, avoiding the lost time and the uncertainty of tracking down verbal verifications from employers.
How can you access these 10-day pre-closing reports?
To pull the VOE reports today, your team will need to code directly to the endpoints or add this functionality through Encompass LOS from Ice Technology. You can find documentation here. To see Mastercard’s Mortgage Verification Services in action, request a demo here.
Want to learn what borrowers want from a digitized mortgage process powered by open banking solutions? Click here.
Freddie Mac has unveiled new automated underwriting capabilities that allow lenders to verify assets, income and employment using borrower-approved bank account data. On June 1, 2022, this functionality will be available to mortgage lenders nationwide through the asset and income modeler (AIM) in Freddie Mac Loan Product Advisor® (LPASM), the company’s automated underwriting system.
Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity) is a service provider for this capability. The VOE Transaction and Payroll reports can help lenders improve accuracy and simplify the process of verifying employment within ten days of closing, removing more friction from the loan origination process without increasing risk.
Read more here.
Whether it comes to buying homes and automobiles, seeking a personal or small business loan, or even approval to rent an apartment, there can be one daunting step of the loan process: income verification.
It can take a long time. It involves a lot of paperwork—if the borrower has devoted the file cabinet space to store it. And without transparency or the right information, the process can feel arbitrary.
Open banking can help. Let’s start at the beginning.
Which Documents Usually Provide Verification of Income?
Paystubs, which are one of the most basic data sources, can provide proof of income as well as employment verification at the same time. With a paycheck traceable to an employer or a client, a lender can determine what kind of income the check represents and can follow up with its issuer.
Other income documents include proof-of-income letters, the standard W-2 annual tax statement and other tax forms that may be more fragmented. These documents aren’t always readily available. While they can be obtained from payroll providers and tax filing software, that involves even more digging and delays for what should be a simple process.
Processing that kind of paperwork, following up with employers and verifying the details is time-intensive—and thus, money-intensive.
How Does Finicity’s Income Verification Make a Difference?
Open banking gives lenders a way to verify income quickly and securely, by verifying income where income is deposited in bank accounts.
Finicity’s income verification allows borrowers to connect their financial accounts to the lenders or services they’re interacting with. This lets borrowers quickly and securely skip much of the manual paperwork, while lenders can make informed decisions with comprehensive transaction and income data, ranging from 24 months of deposit transactions to estimated annual income and average monthly income. All of the information is categorized and ranked with confidence streams using artificial intelligence and machine learning as part of Finicity’s data analytics solutions.
What do we mean by “comprehensive data?” With open banking, the process of verifying income can go beyond paychecks, tax forms and phone calls. With more consumer-permissioned data sources comes a fuller picture of a borrower’s financial health and more accurate income verification.
Where Does Open Banking Fit into Mortgage Lending?
Mortgages are one of the most significant loans that many consumers will take out in their lifetimes, and the mortgage application process can be complex—to an intimidating degree. According to a recent Finicity survey of homebuyers, the top reason that people hesitate to refinance their home is because of the prospect of going through the income and employment verification and qualification processes all over again.
Mortgage credit decisioning hinges on the borrower’s ability to make their mortgage payments on time. Most mortgage lenders require borrowers to provide at least two years of employment and income history via tax documents, paystubs and asset statements. The same goes for self-employed borrowers.
Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity), is able to leverage open banking data to satisfy the most stringent guidelines for the highest-value loans. We’re one of the only data providers approved to verify assets and income digitally by Fannie Mae and Freddie Mac. This data also makes it easy to refresh employment verifications right before close to make sure nothing has changed simply by checking whether they received their last paycheck. When you’re working with something as consequential as someone’s home loan, trust is key.
How Can Renters Benefit from Open Banking?
Homeownership isn’t for everyone, and open banking also helps renters navigating the apartment application process. Landlords screening potential tenants can use the same data to make decisions based on the applicant’s income and their historical rental payments. It can also help give context to low credit scores or other potential red flags on the application, resulting in a fairer decisioning process.
When do Auto Loans Require an Income Check?
Auto loans don’t typically require income verification, but the process may come into play when the prospective borrower has a thin credit file, smaller down payment or a lower credit score. The same goes for credit cards, personal loans and growing payment segments like buy-now-pay-later (BNPL).
For thin-file borrowers such as young people and recent immigrants, checking a credit score doesn’t tell their whole financial story. It can lead to frustrating denials, even though they have evidence of qualifying income and that they pay their bills on time.
By incorporating income and other data—like transactions from connected bank accounts, debt-to-income ratio and more, open finance opens up a world of possibility. Borrowers can be approved for their car loan and qualify for lower interest rates. Lenders, meanwhile, won’t miss out on opportunities to bring new customers on board with a simple process that they can get through while their buyer is still at the dealership.
How can Income Data be Incorporated into Decisioning for Personal Lending?
For many personal lenders, checking income after the fact may not be the most efficient way to approve loans. With open finance, the income, transaction data and analytics can be just as easily incorporated into their lending algorithms as in mortgage and auto lending.
Personal lenders of all types look at hundreds of different pieces of data, depending on how much they’re lending and what it’s for. Open banking provides highly actionable data, direct from the applicant’s bank accounts. It slides seamlessly into their decisioning models.
They no longer have to be satisfied with borrower-submitted income figures or delays in providing supporting documentation when a loan approval is up in the air. Using consumer-permissioned data, lenders receive a nearly real-time view of the applicant’s income and bank account data for a clearer credit decision.
How Does This Help the Consumer?
Verifying income with transaction data permissioned by consumers allows lenders and fintech innovators to simplify the customer experience with a more flexible underwriting process. It provides more choice to consumers, who can still use their paystubs or bank statements while also speeding up the decisioning process by permissioning their financial data.
Open banking adds the data necessary to easily verify income quickly, securely and without manual processes. Whether you’re lending, renting or leasing, Finicity’s income data can simplify the process and provide valuable insights. More data, more time saved, more satisfied borrowers and tenants—open banking helps everyone out.
Related pages:
InstaMortgage’s adoption of Finicity’s Mortgage Verification Services cloud-based technology took about six months, from shopping around for the best provider, to negotiations, inking a deal and then completing the integration itself.
InstaMortgage founder and CEO Shashank Shekhar (pictured) said his company has done many other integrations, but this one may have been the most critical for his company.
Read the full article here.