There's no better sign of how the mortgage market's atmosphere has changed than what potential borrowers are hearing from Ameritrust. "We let them know up front that we are trying to close loans less quickly so all information on the application can be validated," says John Owens, CEO of Ameritrust in Charlotte, where the lender's closings take about two weeks longer than a couple of years ago - even with the deployment of new data management technology that processes more consumer application information in less time. "We are making sure that all information gets verified before closing. We are trying to make it difficult for anyone who's trying to commit fraud."
Mortgage fraud was rampant during the boom - the number of borrowers that defaulted on FHA-backed mortgages before making a single payment has tripled in the past year according to federal data, a trend suggesting the initial applications contained suspect information. "With unemployment increasing, verifying income is going to be extremely important, as is the need to do it in a way that's cost effective," says Mike Cook, co founder of ID Analytics in San Diego, who says lenders should try to gather as much verification information as possible from a few sources as possible.
To accomplish this, more lenders are utilizing Web-based data aggregators. New services from firms like Rapid Reporting and Home-Account, for example, mine and integrate data from myriad public and private sources to verify employment and income in about two days and borrower identity within minutes. These processes used to take weeks - which was why full verifications for mortgage applications were largely avoided in the past.
"For a while the industry was giving out loans with a level of information that you couldn't get a library card with. Frankly, there wasn't any need to self-regulate on behalf of the lender," says Jay Meadows, CEO and president of Rapid Reporting Verification Technology, a firm that sells income and ID verification to lenders and is currently beta testing an employment verification platform. "But now you're seeing a lot of self-regulating. The banks don't want the 'buy backs' and REO."
To use Rapid Reporting's new employment verification platform, users log onto the Web-based application, select VVOE (verbal verification of employment) and provide information such as the borrower's name, employment information and Social Security number. Rapid Reporting runs the information through systems containing billions of public and private records, then assigned the borrower a risk rating based on the viability of the employer.
All of that information is then sent to the tech firm's customer service center, where a staff member verifies the employment by phone. The data can then be reviewed manually by the lender or fed into that institution's origination system. These manual reviews at the goal line suggest the new technology can't, and likely shouldn't, fully verify a borrower's validity. And complete vetting of every borrower is bound to take more time, compared to the boom years when lenders would do complete diagnostics on less than ten percent of applications.
"Two years ago, this vetting was verbal. These days it's all about W-2s, contacting the IRS and employers, etc. We're executing forms on every loan to make sure people are making what they say they're making and verify that their taxes are up to date," says Keith Luedeman, CEO of GoodMortgage.com, a Charlotte-based retail mortgage lender.
Luedeman says the lender, whose volume is steady to higher, takes about 20 percent longer to close a loan when verifications are factored in. "We used to execute full verification on three percent of self-employed borrowers, for example. Now it's 100 percent," he says. "That's super cautious, but I'd say most lenders will be verifying 80 to 90 percent of their mortgage applications soon, if it doesn't become a [regulatory] requirement by that time."
To ease the vetting stress, GoodMortgage is deploying credit-monitoring software from Home-Account that potential borrowers can sign up for before their applications are processed. The platform allows borrowers to fill out a variety of forms regarding income, current mortgage information, the value of their home and credit score. This information is then aggregated and used to produce a risk "score." The lender still has to manually verify all of the information, but the information is centralized and risk weighted for simplicity.
"For the lender, the consumer looks more organized and on top of things. We grab all of the information and take the lender to the one-yard line. But for a $250,000 loan, the lender should still have questions for the borrower." says Mark Goldstein, CEO of Home-Account in San Francisco.