Big changes for self-employed borrowers do not stop at reducing the paperwork to one year of filed tax returns for income verification. Fannie Mae’s DU® validation service, as updated, automates the verification of employment and income of borrowers including those with both self-employment and base income.
Overall, the enhanced service is part of a new automated risk and approval system embodied by Desktop Underwriter® Version 10.1 to validate employment and income more effectively.
Fannie Mae is well aware of the difficulties confronting borrowers and lenders with respect to the mortgage process. There’s the length of time required to close a loan and there’s the paperwork to be gathered, compiled and processed for validation.
“The DU validation service offers our lenders greater transparency and a more efficient mortgage origination process,” Fannie Mae said of the benefits of the DU® validation service.
On the part of consumers, the automated verification of income and employment will make it easier for them to get approved for a mortgage in DU®.
“Fannie Mae’s Desktop Underwriter® (DU®) validation service is designed to provide customers with enhanced loan origination controls, improved processes and certainty around the borrower’s income, asset, and employment information,” according to the service’s FAQs.
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A Heads-up on DU® Validation Service
The validation service on DU® Version 10.1 contains important income and employment updates. Essentially, it can now automatically validate income and employment of a borrower with self-employment income through tax transcripts and base income through an income report.
If DU does not receive the required information needed as represented by both an income report and a tax transcript information, it will issue a message stating that the income and/or employment could not be validated because all documents are not available for income validation.
For example, if a borrower’s employment can’t be validated, then the income from that employer may not be validated as well.
Income, Employment and Assets in DU® Validation Service
The following borrower income can be validated in the latest Desktop Underwriter® using the following documentation:
- For base pay, bonus, overtime, commission < 25%, employment and income verification report is required.
- For self-employment income, retirement and social security, tax transcripts are required.
- For commissions greater than 25%, both income report and tax transcripts are necessary.
As to employment, the following types can be verified by the DU® validation service:
Employment relating to base, bonus, overtime, and commission income
For borrowers with self-employment, no employment will be validated even when they have an income source other than from self-employment.
The DU® validation service can also be used to verify a borrower’s assets, which include checking, savings, certificate of deposits, money market, stock, mutual funds, and retirement accounts. Desktop Underwriter® will issue a message when the source of large deposit needs to be documented.
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DU® Validation Service and Day 1 Certainty™
Fannie Mae first introduced the DU® validation service late last year to provide Day 1 Certainty™ to lenders when evaluating a borrower’s income, assets and employment.
The data validation service under Desktop Underwriter® also provides lenders with relief from representations and warranty obligations concerning the validated loan items.
When a lender opts in to use the DU® validation service, DU® will pull data from third-party vendors such as Equifax to perform calculations and validate the information entered by the lender in DU.
Upon the borrower’s consent, the lender will pull the electronic data and credit report and order this report from the vendor. The lender then submits the loan casefile to DU®.
DU® will then validate income, assets and employment and issue a message whether the income, asset or employment information could be validated and further documentation required.
Once all is clear, the lender will close the loan and deliver it to Fannie Mae. Accordingly, the DU® validation service calls for a streamlined loan processing toward homeownership with efficiencies put in place to minimize disruptions such as re-verification.
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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.
