Faster, Safer, More Profitable: The value proposition of third-party verifications for digital mortgage processing

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The fact is that applying for a mortgage hasn’t changed a whole lot over the past two decades. Even in today’s digital age, underwriting a mortgage can still be an overwhelmingly paper-based process that often gets bogged down with misplaced documents, incomplete borrower information and data input errors.

That’s why many lenders are leveraging third-party verification technology to speed up—and shore up—the mortgage lending process. The right third-party verification partner can help cut days off of the loan cycle while providing lenders with a higher degree of certainty about the borrower’s ability to repay the loan.

Improving the Borrower Experience
As more mortgage lenders transition from legacy processes to enabling digital experiences, many borrowers no longer have to gather paper paystubs and other documentation. When using third-party verification for income, employment and assets, lenders receive real-time data so they can pre-approve a prospective home buyer or lock in an offer faster.

That same information can also be used to prepopulate other documents required in the mortgage lending process, reducing the potential for human error. The bottom line? Shortening the loan cycle can help put borrowers in a better negotiating position for the house that they want.

Increase Lender Yield
Beyond speeding up the loan cycle, enabling automated income calculations by using third party data can help reduce processing costs by boosting efficiency at every step. First, shortening the time-to-close cycle means pulling more loans through the pipeline faster. Second, using third-party verification can free up internal resources that can be focused on closing more complex deals faster.

The right data also brings greater certainty to the process, which can lead to fewer defaults. This has become a growing concern for mortgage lenders as property values rise and competition for homes heats up. Borrowers competing for properties may inflate their income or net worth in hopes of securing a faster or better loan.

According to Fannie Mae’s third quarter Mortgage Fraud Loan Trends report, half of all mortgage fraud findings through the first three months of 2019 included incorrect income and/or assets. Further, a 2019 study from CoreLogic found that false employer reporting is on the rise.

A Strong Investor Value Proposition
At the same time, mortgage underwriters have to worry about increasing consumer debt and stricter lending requirements, which heightens the need for trusted, verified information on their potential borrowers. Third-party verification can help reduce user risk because lenders are receiving direct, real-time employer information from a disinterested third party.

Another consideration is that informed decision-making requires a comprehensive view of every borrower’s creditworthiness. By bringing greater certainty to the underwriting process with third-party verification, lenders can strengthen their loan portfolios and boost investor value.

Finally, partnering with a third-party data provider offers immediate scalability to an industry that is notoriously cyclical. When interest rates drop refinancing goes up, which often creates more volume than analog-based lenders can manage. During real estate downturns, though, lenders often contend with over-capacity. Using third-party verification enables lenders to meet fluctuating market demands.

Sources Lenders Can Trust
Of course, the data is only as good as the vendor supplying it, so it’s up to the lender to ensure that their data partner meets the highest standards for accuracy, consumer protections and defined engagement with data furnishers. It’s also important to understand where the data originates, how often it is updated, and how your data partner ensures the validity of all of its sources.

Fortunately, Freddie Mac and Fannie Mae have already done a lot of the leg work. Fannie Mae’s Day 1 Certainty® and Freddie Mac AIM have vetted the largest data providers and published a list of recommended vendors. Sticking with GSE-approved vendors can give commercial lenders peace of mind.

Mortgage companies that have already automated their verification processes are reporting immediate benefits. For one lender, year-over-year pipeline turn times were observed to move up to 30% faster, mortgage origination efficiency improved by 15%, and 5 to 7 days were shaved off the average close time—all while reducing the burden on the borrower and improving the customer experience.

As more lenders adopt this game-changing technology, third-party verification is becoming an industry standard. Mortgage companies that are slow to make the digital shift risk being left behind.

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