Jan. 28, 2019 –
Verifying Assets Using a Verification Services Provider
When making a credit decision lenders verify the loan applicant's assets to establish the borrower has appropriate source of funds for the transaction down payment. In some cases a distribution of the borrower's assets over time is considered as a way to establish ability to repay the loan, impacting the amount and interest rate of the loan. Financial accounts the borrower owns, such as savings accounts, checking accounts or brokerage accounts that include stocks, bonds, mutual funds, 401(k)/IRA, etc are the types of assets lenders verify. Assets that have cash value, or are easily converted to cash, are known as "liquid assets". Lenders also want to know that the liquid asset is "seasoned," meaning that the assets have been owned for a time, usually two months or longer. This seasoning indicates that the borrower is a responsible saver. If the borrower is relying on funds gifted by another party to qualify for the loan, an asset verification will assist in verifying the funds and whether or not it was from an allowable source.
How To Verify Assets
Before the onset of asset verification service providers, a borrower's assets were verified by collecting and reviewing the borrower's bank/brokerage statements. Underwriters and processors combed through page after page looking for authenticity and calculating timing of deposits and aggregating amounts of funds finally culminating into a cash flow analysis. This is a resource-heavy activity, occupying a lender's most expensive resources (underwriters) as this was typically done by hand. Another pain point existed, accepting the borrower-provided statements exposed an element of risk. Bad players provided altered documents that tilted loan decisions in their favor.
Fannie Mae on Verification of Deposits and assets from their Sellers Guide:
Verification of Deposits and Assets
The lender can use any of the following types of documentation to verify that a borrower has sufficient funds for closing, down payment, and/or financial reserves:
Request for Verification of Deposit (Form 1006 or Form 1006(S)). The information must be requested directly from the depository institution, and the complete, signed, and dated document must be sent directly from the depository institution.
Copies of bank statements or investment portfolio statements. The statements must cover the most recent full two-month period of account activity (60 days, or, if account information is reported on a quarterly basis, the most recent quarter). The statements must:
If the lender is the holder of the borrower's account, the lender may produce a printout or other alternative verification of the asset(s) directly from its system. The printout or alternative verification is acceptable as long as all required data (above) is supplied and documented.
Direct verification by a third-party asset verification vendor.
Copies of retirement account statements. They must be the most recent statements, and they must identify the borrower’s vested amount and the terms. (See B3-4.3-03, Retirement Accounts, for additional information.)
Benefits of Using an Asset Verification Services Provider
Speed and convenience are the two reasons why outsourcing Asset Verification makes sense. Verification Services providers who offer asset verification typically have invested in technology and workflow and have and automated API connectivity to bank data. This means that orders are submitted and processed online and in real time through system integrations with the banks. For those transactions that are not fulfilled through connected integration with the bank, workflow wrappers send an electronic request to the borrower who securely provides the credentials for their online banking accounts. The provider then safely and securely retrieves the asset data using the credentials.
Asset Verification providers have established relationships with the banks they are receiving data from. Orders submitted are normally returned same day. The vendor monitors processing status, errors, and error notices for requests they have submitted. By monitoring the process they have been able to implement process improvements that save time and money.
Questions You Should Ask Your Asset Verification Services Provider:
- What are the average turn times for orders submitted?
- Do you have access to reporting/tracking, that summarizes the inventory, SLA adherence and turn time history of my orders?
- Does your service require the borrower to provide their online banking credentials (user name and password)?
- What is your process to obtain the borrower's consent and account credentials, if needed?
- What % of deposit accounts in the U.S. do you have API connectivity to?
- Is your service integrated with my Loan Origination System (LOS)?
Final Thoughts On Why Using an Asset Verification Services Provider Makes Sense:
Asset Verification is an important step in mortgage origination. Outsourcing asset verifications is an effective way to leverage technology to speed your loan closing turn times and are generally inexpensive to procure.
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