Jennifer Henry: Reducing Risk and Increasing Efficiency for Digital Mortgages with Third-Party Verifications

Jennifer Henry is Vice President of Strategy and Marketing with Equifax Mortgage & Housing Services, Atlanta. She brings more than 20 years of experience to her position, including operations, technology, marketing, sales, product management, mortgage loan quality and loan origination services.

The impact of the COVID-19 pandemic is being felt around the world. This unprecedented event has had a wide-ranging impact on the mortgage industry as a whole and the processes involved in securing and closing a mortgage.

Prior to COVID-19, the mortgage application process had gone largely unchanged for two decades. While the industry had started to see a slight increase in the digitization of the mortgage origination process prior to the pandemic, underwriting a mortgage was still an overwhelmingly paper-based process that could be slowed by misplaced hard-copy documents, incomplete borrower information and data input errors.

However, the onset of COVID-19 shelter-in-place orders followed by guidelines for increased social distancing, quickly changed the course of the overall mortgage lending process. Technology became a necessity. Digitizing the process became not only a time saving mechanism, but a vital health and safety issue to help protect the individuals involved in the process. At the same time, record-low interest rates drove a spike in demand for both purchase and refinance applications. This has accelerated the digitization process as mortgage professionals seek ways to efficiently meet the high demand.

Despite the efficiencies the robust move toward digitizing the mortgage origination process has brought, concerns around risk and underwriting a fraudulent loan still exist. That is why many lenders are leveraging third-party verification technology to not only expedite the lending process but to help ensure the data is accurate. The right third-party verification partner can help cut days out of the loan cycle while providing lenders with a higher degree of certainty about the borrower’s ability to repay the loan.

Streamline and Improve the Borrower Experience
As mortgage lenders transition from paper-based processes to more digital ones, many borrowers no longer have to gather paper-based documentation such as pay stubs, W-2s and other types of documentation. By using third-party data providers for verification of income, employment and assets, lenders can receive real-time data, enabling them to pre-approve a prospective home buyer faster, remotely and safely.

Utilizing that same information to prepopulate other documents required in the mortgage lending process can also help reduce the potential for human error and expedite the loan process. Shortening the loan cycle can also potentially lower risk for the lender.

Strengthen Lender Portfolios
In addition to shortening the loan cycle, automated income verification from third party data providers can help reduce reprocessing costs by increasing efficiency at every step. Shortening the time-to-close enables more loans to be closed faster. In addition, utilizing third-party verification enables internal resources that no longer are required to manually pull documentation to focus on more complex deals, generating additional revenue for their organization.
Ensuring that the right data is being used brings a level of greater certainty to the process, not to mention fewer defaults, which has become a growing concern for mortgage lenders as property values rise, competition for homes increases and interest rates remain low. Artificially inflated borrower income could lead to a higher number of defaults in the future.

Increased Investor Value
As a result of the current pandemic where unemployment is on the rise and people are experiencing financial uncertainty, mortgage underwriters have to worry about increasing consumer debt, which heightens the need for verified information on their prospective borrowers. Leveraging a data provider can help reduce risk because lenders are receiving direct, real-time employer information from a neutral third-party.

Informed decision-making requires lenders to have a complete view of borrower’s creditworthiness. Third-party verification helps bring greater certainty to the underwriting process, enabling lenders to strengthen their portfolios and increase investor value.

Trusted Sources for Lenders
The quality of the data is important. It is the responsibility of the lender to ensure that their data partner meets the necessary standards in providing accurate and useful data. It is also important to understand where the data originates, the frequency at which it’s updated, and how the data is validated.

Freddie Mac and Fannie Mae provide a good deal of that information and assurance. Fannie Mae’s Day 1 Certainty and Freddie Mac AIM have published a list of recommended vendors. Working with GSE-approved vendors can give lenders peace of mind.

As more lenders continue to adopt and implement this technology coupled with the efficiencies and cost-savings it brings, third-party verification is quickly becoming an industry standard. Those that are slow to adopt digital solutions may have higher risk, increased defaults and longer and cumbersome processes.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)