Cost Tampers Borrower Data Verification
One area where cost appears to be a major roadblock to lenders and servicers is the use of tools that offer expanded datasets that include various national, centralized data.
The marketplace has proved that access to IRS data helps minimize errors in mortgage loan files. Similarly, the Social Security tool is effective, says Jay Meadows, president of Rapid Reporting, an employment data verification company.
Right now, however, Rapid Reporting and peers in the industry are busy trying to improve data processing efficiency to a point where their services become financially more accessible to servicers and lenders. "We're still working very hard to reset the prices back down." By that he means pricing on certain sets of data such as Social Security, which in his estimation remain high.
Insiders agree that while currently various data solutions are available for use the industry is still struggling to adapt a new level of data exchange and cooperation.
In fact, Janet Ford, senior vice president at The Work Number, also maintains that servicers are using more data, in part due to new data reporting provisions from various government entities, such as Fannie Mae.
In an earlier interview she told this publication that servicers trying to mitigate risk and comply with regulatory requirements that exclude the use of stated income in a loan application need to periodically calculate debt-to-income ratios in performing loan modifications. And consequently they are generating more demand for third-party employment and income verification information providers like The Work Number, Rapid Reporting and others.
Some of the challenges that slow down that effort to improve data costs for lender users are the fact that despite market pressure to engage in thorough loan data research and reporting, many lenders are not maximizing data use.
"Certainly there's not a 100% adoption of income verification practices in this country." Mr. Meadows says the industry will get there only when lenders review 100% of the loans, and each and every time a loan is processed borrower income is verified.
"I do not know why, but also I never understood why lenders did not do that in 1998. How can you not verify the critical pieces of a loan like identity, income, employment and collateral? If you can't get past those four sets of data, why even bother going further? But that story is never cheap ..."
Systemic loopholes allow lenders to be flexible when it comes to scrutinizing data. It all boils down to who bears loan risk. So one change the industry may be going through is that of ensuring all parties of a mortgage transaction bear risk equal to or proportional to their participation.
"If all parties are going to have skin in the game, I assure you they're going to verify income. That's the deal, once I know that this is going to come back on me, I'll be careful," Mr. Meadows says.
And that is why regulation that helps eradicate such loopholes can also help increase loan processing efficiency.
He joins others in the industry, however, when stressing that the need to regulate certain areas should not turn into over regulating and that in the end "adds a tremendous amount of cost" and beats the purpose.
"What we have been fighting for all along. You do want to reduce cost overall, it's a matter of getting lenders back to what they do: lend money based on life risk such as divorce or death, and measure what they can measure vs. stated income for instance. ... We cannot use polygraphs, but it's pretty easy to find out. It's amazing how complicated we make it sometimes."