Pushing mortgage underwriting further into the digital age

This piece originally appeared in the August 2022 edition of MReport magazine, online now.

Homebuyers face major challenges in today’s market: declining housing supply, rising interest rates and pandemic moves are creating strong demand for housing. Other issues plaguing the housing industry include labor shortages, supply chain issues and rising material costs, all of which make new construction a time-consuming, frustrating endeavor. and extremely expensive. However, these trade barriers are only part of the battle.

According to a recent study by Mastercard, consumers say getting a mortgage is a serious problem in an already painful home buying process. The survey shows that 89% of homebuyers find the mortgage process to be just as or more stressful than the home buying experience.

There has been a movement within the industry to embrace a fully digital mortgage and make appraisals easier for lenders and borrowers. Freddie Mac has been at the forefront of this effort, striving to provide a digital solution that uses bank account data to help streamline the underwriting process. They have taken another step towards digitalization by announcing the latest enhancement to the Lending Product Advisor (LPA) Asset and Income Modeler (AIM) with 10-day Pre-Close Verification (PCV) automation from employment. This is now live and available in LPA, the company’s automated underwriting system.

Automated Job Assessment with AIM
The new VOE Payroll and VOE Transactions reports provide the data Freddie Mac needs for the 10-day PCV. By adding one of the reports, lenders only receive the data needed for closing rather than updating the current full reports that have already been subscribed. This helps eliminate last minute issues and other redundancies in the closing process.

Automated Revenue Assessment with AIM
In February, Freddie Mac announced AIM for Direct Deposit Income, making it easier for lenders to assess a potential buyer’s income paid by direct deposit to reduce the paper documentation burden for borrowers, allowing lenders close loans faster and simplify the mortgage process. This saves time and money, while still meeting Freddie Mac’s strict credit underwriting standards.

As a designated third-party service provider to 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 customers to automate the capacity assessment using consumer authorization. data, direct deposit account data and work history. In the case of income, lenders can now view direct deposit history to verify income.

According to the American Payroll Association, with over 93% of American workers paid by direct deposit, AIM can assess various sources of income. In addition to direct deposit data, with the borrower’s permission, AIM can estimate an applicant’s income from employer data. Finicity, a Mastercard company, was one of the first service providers to support Freddie Mac’s AIM for income using direct deposits and is one of the few providers to offer both transaction and pays for 10 day employment verification.

“Freddie Mac’s integration of Mastercard’s open banking technology with AIM’s 10-Day VCP solution will help minimize risk and streamline the mortgage process for lenders and borrowers,” said Kevin Kauffman, Freddie Mac Single-Family VP of Client and Partner Delivery. “Open banking data improves the lending process by providing financial data from consenting consumers’ bank accounts to verify assets, income and employment.”

The Transformational Impact of Open Banking
The mortgage process is still largely burdened by manual processes that require consumers to submit (and often resubmit) a large amount of paper documents or scan and email PDFs. This cumbersome process is frustrating for lenders and consumers who are increasingly prioritizing digital experiences over manual processes.

Data from Mastercard showed that nearly three in four respondents (72%) were surprised that manual processes still drive the mortgage process. In an environment where consumers are accustomed to everyday digital experiences where speed and accessibility matter, open banking is changing mortgages and the way the industry views the customer experience.

The availability of real-time data through open banking and the acceptance of this data by Freddie Mac allows lenders to adjust underwriting models to be not only more efficient and scalable, but also potentially more inclusive. since they have a more complete picture of the borrower. financial situation, allowing more consumers to realize their dream of home ownership.

A digital mindset
Consumers are increasingly relying on fintech to gain insights and streamline their experiences. Additionally, consumers understand the potential of their own financial data and are comfortable using it. Only 12% of Mastercard survey respondents said they were not comfortable sharing their financial data with a lender.

This access to data can give lenders a faster, more accurate and more efficient underwriting process. Consumer-authorized data provides additional insight that can lead to better decision-making for lenders and better financial outcomes for consumers.

Additionally, consumers whose lenders use digital verification processes are more satisfied with their overall borrowing process. 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 that their loan processing time was shorter than expected or met their expectations.

These new tools and systems can help reduce manual checks and paperwork that can add to borrower frustration. A recent study by Freddie Mac found that lenders that effectively leverage digital technology and integrate digital improvements with changes in process management and culture are typically those in the top performing category.

Additionally, across all lender categories, mortgages with digital offerings produced, on average, nine to 10 days of savings on closing cycle time.

Using open banking data with AIM helps meet the needs of today’s digital consumer, providing a streamlined process with less friction and less paperwork compared to manual processes.

Mortgage Automation
The benefits of automating the mortgage process are significant for lenders by reducing document collection frustration, eliminating manual errors, reducing the risk of fraud, increasing referrals and opening new doors. for account and employment verifications.

Consumers benefit from automation that matches their lifestyle and expectations when it provides transparency in the ability to authorize their financial accounts to their advantage. Open banking also gives consumers more choice, allowing them to choose the solution that best meets their needs.

Mortgage Verification Services (MVS) from Finicity, a Mastercard company, is a one-touch digital verification product that provides the financial data AIM needs to seamlessly assess assets, income and employment. Each lender’s workflow may be unique. MVS is designed to be flexible and accommodate everything from refinancing to new purchases, including qualified and non-qualified mortgages. Features are designed for lenders and borrowers to create a reliable and agile solution, improving the overall experience.

Leveraging open banking in mortgage lending is a win-win situation for lenders and borrowers.

About Mike Crayton

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