TheMReport — News and strategies for the evolving mortgage marketplace.
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Feature 28 | Th e M Rep o RT current employment records contributed by more than 3,700 em- ployers nationwide, making it the largest collection of payroll records contributed directly from employ- ers. This data is updated every payroll cycle, ensuring the most up-to-date information possible. For those consumers who are not listed in a national database like The Work Number, manual verifica- tions can be ordered from different sources. It is important to make sure that the supplier of the manual verification uses an auditable pro- cess in case the loan defaults. Income can be verified by or- dering a Tax Return Verification (IRS form 4506-T), which confirms both income and Social Security Number. TRVs can be easily ordered through online platforms provided by various mortgage services providers, and generally provide the needed validation within 24-48 hours. Determining the debt-to-income ratio is generally straightforward, unless the applicant takes on new debt right before closing. Research shows that 22 percent of new debt is taken on by applicants in the 10 days before a home loan closes. Lenders can use Undisclosed Debt Verifications (UDVs) from all three bureaus to uncover new debt before it derails closing—or worse, delivers a costly buyback when the loan is validated by Fannie or Freddie and found to be out of compliance. UDVs show exactly what has been reported to the credit bureaus—new tradelines, inquiries, secondary reis- sues, bankruptcies, judgments, liens, collections, late payments (30-60- 90-120 days), and even recent high utilization on existing bank card and revolving tradelines. Not every mortgage services provider offers UDVs from all three bureaus, so it is definitely something to verify before moving forward. Navigate the Uncharted Waters of Non-QM Loans T here are many loans that don't fit Qualified Mortgage requirements. When executed properly, with complete documentation of income, assets, debt, and employment, non- QM loans may offer significant opportunity for lenders to make profitable, low-risk loans. Non-QM loans often involve wealthy borrowers, self-employed business owners, doctors just beginning their careers, or even those with slightly blemished credit. Many people in these situ- ations are considered reasonable risks even though their circum- stances prevent them from meet- ing ability-to-repay rules. According to the Consumer Financial Protection Bureau, as long as the lender makes a reasonable, good-faith determina- tion that the consumer is able to repay the loan based on common underwriting factors, the lender can originate any non-QM mort- gage. The key is making sure the loan is going to perform for the long haul—and the way to do that is performing due diligence using third-party vendors. Unfortunately, if the lender is using multiple vendors, vetting each one can be an extremely time-consuming process. Many lenders find that getting all their verifications from one vendor increases their productivity and decreases their stress level. In many cases, using one vendor means that the lender receives the applicant data at the same time as its brokers, which elimi- nates the possibility of any data manipulation. All this is critically important because non-QM loans do not provide a safe harbor against borrower suits, nor is there a secondary market on which non- QM loans can be sold—at least, not yet. Because non-QM loans must be held in the lender's inter- nal portfolio, verification must be as thorough as it is for QM loans in order to protect the lender. Despite the higher risk, many lenders are planning to offer non-QM loans. According to the 2014 21st annual ABA Real Estate Lending Survey Report, more than one-third of bankers now plan to make non-QM loans in targeted markets or products. Sailing the Verification Wave to Success T he decision whether to originate only QM loans or to move into the non-QM market is one that each lender will have to face as they set out on this new, uncharted mortgage ocean. What is your comfort level? Would you rather be able to see the shore, or do you want to explore what's over the horizon? There's no right or wrong answer—just what's right for you. But whether you choose QM, non-QM, or both, one fact remains the same—the right verifications partner can smooth the choppy waters so you can confidently cruise forward. Author GreG holMes is national director of sales and marketing at Credit Plus Inc., a third-party verifications company serving the mortgage industry. He can be reached at beyondbundled@creditplus.com.