Servicers Reviewing Data on Employment, Past and Present
ST. LOUIS-Servicers are exhibiting an "acquired taste" for past and present employment data reviews that help assess a borrower's future mortgage performance.
Servicers are actually using more data says Janet Ford, senior vice president of The Work Number here, in part due to new data reporting provisions from various government entities, such as Fannie Mae, which among other requirements has added deadlines designed to speed up loan processing and avoid costly backlogs.
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 are generating more demand for third-party employment and income verification information providers like The Work Number.
Servicers appear to favor automated feedbacks that ensure data quality and quantity, as well as fast integration into their existing processing software.
In addition, capacity shortages are pressing even large size lenders who service the loans they originate to outsource employment data verifications.
According to Ms. Ford, more and more lenders are incorporating additional data sources into the decision making process whether it is for a loan origination, refinancing or a loan modification. For example, she says, clients are adding employment history information to a borrower's current status and reoccurring patterns so they can best evaluate their ability to afford a mortgage for the long term.
If even until recently some servicers would have skipped a thorough income and employment report when all the other main indicators were good, such as for example a very high credit score, she explained, now they would not validate a borrower unless expanded data are available.
Sometimes misconceptions about the data reporting requirements get in the way.
Ms. Ford recalls how a client believed new Fannie requirements did not allow lenders to outsource this portion of the data reporting but access it directly from employers.
"From a loan modification perspective," it makes much more sense to review and analyze current and past employment history. For instance, someone who does not change jobs frequently tends to have a better chance of preserving their income source in the long run.
"We don't get into the predicting part of it but we do give them the ingredients they can use to make their cake, sort of, and decide what kind of cake they will end up with," Ms. Ford says.
She sees potential in a market drive to broaden data access built within a 4506 form that allows lenders to access three tax years. Right now they can retrieve 2008, 2007 and 2006 tax forms.
"Coupled with their current employment status and perhaps some historic information, it certainly will offer a broader picture than what the lender or servicer may have been looking at before.
"It gives you a better picture of what the future earnings of that borrower may be," she says.
And since that is a risk assessment, she adds, "Would you rather make a decision with this data or in the absence of that data? Clearly making a decision in the absence heightens your risk."