As a mortgage lender, it’s your responsibility to ensure that your borrowers can afford to pay back their loans on time. Part of this process involves verifying their income and employment.
Unfortunately, you can’t simply rely on applicants’ claims that they earn an adequate income at their current job. You need to corroborate their claims to ensure they truly meet your mortgage qualifications.
Below, we’ll discuss the importance of verification of income and employment (VOE) in greater detail. We’ll also highlight how automating your VEO strategy can save you time and streamline your workflows.
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What Does VOE Matter?
VOE is one of the many tools you can use to make sure your borrowers are qualified for their mortgages.
The need for VOE became acutely apparent after the mortgage crisis of 2008. Prior to this crisis, many aspiring homeowners got approved for stated-income mortgages.[i] In other words, no one took the time to verify their income or employment, leading to a number of borrowers defaulting on their loans.
Fast forward to today and lenders are required to verify borrowers’ documented income and employment,[ii] thanks to the Dodd-Frank Act.[iii] Congress enacted the Dodd-Frank Act in 2010. It put in place many reforms that are designed to prevent future housing crises. For one, the Dodd-Frank Act requires lenders to make reasonable efforts to ensure their borrowers can pay their mortgages on time, such as verifying their income and employment.
The Dodd-Frank Act highlights how VOE protects the integrity of the mortgage industry and everyone who participates in it, from aspiring homeowners to secondary market investors.
How Do Today’s VOE Processes Work?
Without the help of automated solutions, VOE can be a tedious process. Different mortgage lenders have different VOE processes.
Some popular manual methods include:
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- Customer verification – The first VOE strategy you can use is to ask your applicants to provide documentation for their income and employment claims. For example, you can request that they share several months of pay stubs or bank statements with you.This option is undesirable for several reasons. First of all, it places the burden of producing documents on your borrowers, which may harm their customer experience.Additionally, asking your borrowers to provide their own documentation may leave you more vulnerable to mortgage fraud. In the age of Photoshop, it’s not that difficult to forge bank statements or payroll documents.
- Consumer-permissioned vendors – Since asking your consumers to verify their claims isn’t ideal, you may want to use consumer-permissioned vendor providers instead.Consumer-permissioned vendors ask your borrowers to share their bank account or payroll account credentials with them. After that, these companies can access their accounts and extract verified documentation on your behalf.Some borrowers may be uncomfortable sharing their credentials with these types of companies. However, consumer-permissioned vendors have enjoyed increasing acceptance in recent years.
- Employer verification – Another manual VOE strategy is to verify your borrowers’ information independently.With this method, you have to call your borrowers’ employers directly and ask them to verify their information. Not only can this process be tiresome, but there’s no guarantee that employers will actually share information with you.Additionally, many secondary market investors don’t like purchasing loans that use this type of manual VOE.
- Third-party vendor VOE – Lastly, you can request verifications from third-party vendors, like WorkNumber or ExperianVerify.With this method, you must reach out to your vendors, request information, wait on their responses, and follow up with them as needed. Even after all of that work, there’s always a chance that your first third-party vendor won’t return a hit.In this case, you may need to repeat the process with several other third-party vendors. If none of them can provide you with a hit, you may ultimately need to resort to one of the other strategies listed above.
As you can see, manual VOE can take up a lot of time and attention, no matter which method you use.
The Downsides of Manual & Traditional VOE Processes
Manual VOE has many drawbacks. Compared to automated VOE, manual VOE is:
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- Time-consuming – Since manual VOE is so cumbersome and complicated, it can interrupt your workflows and slow down your sales pipeline. Tracking multiple vendors, remembering to follow up with them, and always wondering if you’ve received a hit can also detract from the rest of your loan origination work.
- Employer constrictions – Not only does manual VOE take up a lot of time, but it’s also restricted by the work hours and availability of your borrowers’ employers. If an employer is hard to reach, out of the office, or no longer a part of the company, your manual VOE endeavors may experience unexpected delays
- Fraud vulnerabilities – Manual VOE is more prone to mortgage fraud, since borrowers can always falsify documents or create fake employers. Fannie Mae has discovered that a growing number of fake employers have listings in credible online business directories, making it increasingly difficult and time-consuming for underwriters and processors to suss out fraud.
- Error-prone – Manual VOE is also more prone to accidental errors. You never know when one of your employees may dial the wrong phone number or improperly transcribe information from their calls.
- Ineffective – Even with all of the time and effort that goes into manual VOE, its hit rate isn’t that high. Your hit rate can be as low as 50% if you only consult with a single third-party vendor.
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Rather than dealing with the downsides of manual VOE, you can streamline your VOE process significantly with automation.
How Does Automated VOE Work?
Automated VOE simplifies one or all of the methods mentioned above. It streamlines the process of requesting information from third-party or consumer-permissioned vendors, enabling you to focus on other tasks. As a result, you won’t have to deal with the hassles of contacting borrowers’ employers or pulling reports from various third-party vendors individually (ExperianVerify, The Work Number by Equifax, Citidel, etc.). You can let an automated VOE take over the process instead.
To use automated VOE, you start by choosing from a list of vendor partners that integrate seamlessly into a cascading workflow. After that, you can customize the order in which you pull verifications from each of these vendor partners. Once you request an order, the automated VOE can cycle through your selected vendors until it receives a hit. If no hit is received, the process will be automatically sent to a manual verification system and your team will be notified.
Automated VOE solutions let you complete the VOE process all from one place. Rather than engaging with each vendor partner’s systems independently, you can pull all of your verifications within your LOS. Automated VOE’s API allows for numerous combinations and workflow possibilities.
What is Cascade VOE™?
Here at Certified Credit, our automated VOE solution is called Cascade VOE. It uses a multi-level cascade to request verifications from various vendors.
With Cascade VOE, you can standardize and customize your organization’s vendor flow by selecting the verification vendors you would like to use in each stage of the cascade. If your first vendor doesn’t return a hit, Cascade VOE can move on to the next and go down the line until it receives one.
Once Cascade VOE returns a hit, you’ll be notified right away. As a result, you won’t need to waste your time wondering if you need to follow up with a specific vendor. Best of all, you only have to pay for a verification once you actually receive a hit.
Cascade VOE Example
Let’s say John Brokerman wants to verify his potential borrowers’ income and employment. John would sign into his LOS and navigate to the Cascade VOE tool.
Once he’s there, he would select the borrower authorization (in some cases, this may be associated automatically) and choose the type of VOE he would like to order (VOE, VOI/E, one year, two years, etc). After inputting the necessary information, he can walk away and focus on other tasks. While John’s away, Cascade VOE will start with his first vendor (Experian Verify). If there’s no hit with Experian Verify, Cascade VOE will automatically move to his second vendor (The Work Number).
Once there’s a hit, John will receive a notification so he can come back to view his VOE. If there’s no hit with third-party vendors, Cascade VOE will automatically move on to a consumer-permissioned vendor (Citidel) or manual VOE. If John uses Certified Credit’s manual VOE services, our team will be notified that a manual VOE is required. In this scenario, John can expect a verification in 48 to 72 hours.
The Benefits of Automated VOE
Automating your VOE strategy offers many benefits. With Cascade VOE, you’ll enjoy:
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- Streamlined workflows – As we mentioned before, manual VOE can be complicated and time-consuming. Automated VOE streamlines your VOE workflows considerably, removing the human touch from many tedious tasks, freeing up your time and attention for other important responsibilities.
- Faster hits with a higher hit rate – Since Cascade VOE can request verifications from one vendor after another automatically, you can get hits faster with less work. By compressing the time involved in your VOE process, you may be able to expedite your sales pipeline and make yourself available to originate more loans.Cascade VOE can also increase your hit rate. On average, Cascade VOE clients see hit rate increases of 20% to 30% within the very first year. That’s because Cascade VOE can use a variety of verification methods, ranging from traditional third-party vendors to consumer-permissioned vendor providers. If none of your chosen vendors return a hit, our team at Certified Credit will complete the required manual VOE on your behalf.
- Third-party verifications – As we mentioned earlier, investors often frown upon lenders completing their own verifications. Cascade VOE can verify your borrowers’ income and employment with third-party vendors on your behalf, keeping the entire process at arm’s length and satisfying secondary market investors’ expectations—providing Fannie Mae Day 1 Certainty when ExperianVerify and The Work Number are the sources of the verifications.
- Automated alerts – Rather than wondering if your verifications are done yet, Cascade VOE enables you to focus your attention on other tasks, knowing you’ll receive prompt alerts as soon as verifications are complete, or if the VOE moves to a manual process.
- Customized alerts – Cascade VOE lets you customize how you receive your notifications. You can choose to receive them via SMS/text, email, or within your loan origination system (LOS). Getting VOE alerts on your phone can come in handy if you find yourself out of the office frequently. You can also have VOE hits sent to multiple people within your mortgage lending company.
- Lower VOE costs – Since you only pay for verifications when they return hits, Cascade VOE can increase your hit rate while simultaneously lowering your verification costs. You can also customize your Cascade VOE settings to reach out to lower-cost vendors first.
As you can see, Cascade VOE can free you from the drudgery of manual VOE while enhancing your efficiency and boosting your bottom line.
How to Use Cascade VOE
Adopting a new technology, even when it offers impressive benefits, can sound like a lot of work. Luckily, this isn’t the case with Cascade VOE. Cascade VOE works with your existing workflows, rather than the other way around.
Since Cascade VOE can integrate seamlessly with your LOS, all of your VOE data will automatically populate into your LOS. As a result, you’ll enjoy access to all of your borrowers’ information in one place.
Not only is Cascade VOE easy to integrate with your current systems, but it’s also easy to use. All you have to do is:
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- Set your vendor preferences
- Order your verification of income and employment
- Push submit
- Let Cascade VOE take care of the rest
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It’s that easy!
How Long Does Cascade VOE Take to Verify?
The time it takes for Cascade VOE to return hits can vary, depending on the vendors you choose to integrate into your customized cascade.
If you select vendors that offer Day 1 Certainty (such as ExperianVerify and The Work Number),[iv] you can enjoy the peace of mind that you’ll always receive same-day hits. Even without Day 1 Certainty, Cascade VOE returns much faster hits than you could obtain manually.
Automate Your VOE Strategy Today With Certified Credit
As you can see, Cascade VOE has the potential to transform your VOE process. In addition to Cascade VOE, we offer a variety of other automated solutions. Our Cascade Alerts can help with your lead generation efforts, while Cascade Prequal can automate your prequalification process from start to finish.
At Certified Credit, our growing suite of mortgage lending solutions also includes:
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- Affordable credit reports
- Fraud and risk support
- Settlement services
- Credit report tools
- Money-saving strategies
Are you ready to experience the benefits of automated VOE for yourself? If so, schedule a Cascade VOE demo with us today. You can also learn more about the rest of our Cascade automated solutions here.
Sources
[i] Motley Fool. Stated Income Loans Wrecked the Housing Market in 2008. Here’s Why They’re Safe in 2021.
[ii] Consumer Financial Protection Bureau. Consumer Financial Protection Bureau Issues Rule to Protect Consumers from Irresponsible Mortgage Lending.
[iii] Investopedia. Dodd-Frank Wall Street Reform and Consumer Protection Act.
https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp
[iv] Fannie Mae. Day 1 Certainty.
https://singlefamily.fanniemae.com/applications-technology/day-1-certainty
