Mortgage professionals know the importance of getting their clients’ mortgage loans closed as fast as they can, with as little fanfare as possible. They also understand that the more consumers they service, the better their reputation as a trusted advisor becomes.
Since we opened our doors in 1989, Data Facts had committed to assist our mortgage lending clients in their goal of serving every person that walks through their door to the best of their ability. We have built a foundation of mortgage lending services that are instrumental in helping close more loans, faster and easier, and saving loans that would otherwise be lost because of the consumer’s less-than-perfect credit score.
Whether you are new to the industry, or have been in the mortgage business for decades, this guide will help you understand ways to serve your clients better with greater knowledge and a more solid foundation of mortgage lending services. And how to do it while keeping your lending institution in complete mortgage lending compliance.
Let’s get started!
If you feel like the mortgage industry has heralded in one change after another for the past several years, you are right. From complying with LQI to UDAAP to following TRID guidelines, simply doing your job has begun feeling like you are navigating a mine field of disaster!
A couple of issues are especially important in the industry right now. Mortgage professionals should address these with mortgage lending services.
DAY 1 Certainty
Fannie Mae committed to making the loan process more efficient and transparent by implementing Day 1 Certainty. Opting into the DU Validation Service provides mortgage professionals the ability to use third-party mortgage lending services to verify borrower income, assets, and employment.
Here are some additional FAQs about Day 1 Certainty that we compiled based on the questions our clients frequently ask during our meetings with them.
Working with a mortgage lending services vendor that is available in DU as a Day 1 Certainty provider unlocks several benefits:
One of the biggest benefits of Day 1 Certainty is that lenders get a more efficient post-closing QC process. Fannie Mae’s CEO recently commented on how Day 1 Certainty is making lenders who are taking advantage of it more effective, and how he is expecting it to grow in adaptation as the industry becomes more comfortable with technology.
Deciding to take advantage of Day 1 Certainty means lenders must closely manage the third party vendors they are partnering with, as all of them are not available in the system.
When it comes to vendors, another driver of success is...
Being Fannie Mae Approved
Fannie Mae is a veritable giant in the mortgage lending services industry. Choosing vendors that are on the Fannie Mae list is essential in creating a fast-moving, productive mortgage lending process.
Lenders should choose partners who are up-to-date on the rules and guidance that Fannie Mae shares periodically. From increasing the debt-to-income ratio, to knowing how frozen credit files are managed, to understanding how Fannie Mae is changing how student loan debt is accommodated, lenders must stay abreast of the changes and additions in order to remain relevant and compliant in their marketplace.
There aren't just opportunities presenting themselves in the mortgage industry. Threats abound as well. Mortgage professionals and the industry in general must be on guard because the ever-present issue of mortgage fraud isn't going away.
The cost of mortgage fraud is high. Failing to catch it opens lenders up to extensive expenses.
Fannie Mae recently released numbers regarding mortgage fraud in 2017, and the results showed that it is rampant in many forms. Several perimeters have been put in place in the last few years to minimize lending institutions' risk of falling victim to this costly and rampant crime.
There are six common mortgage fraud red flags lenders should recognize and address to protect themselves and their client base. Liabilities, credit, assets, employment and income, occupancy, and appraisals are all areas that commonly fall victim to consumers with nefarious intentions.
In addition to the fraud that has been around for years, a burgeoning type of fraud that has taken the industry by storm is wire transfer fraud. Lenders need to be concerned about this type of fraud because it's fast-growing, international, and easy to execute. There are new reports that help lenders and title companies uncover wire transfer fraud, and it's beneficial for lenders to adapt one of these tools into their processes to minimize the risk of sending money to the fraudsters by accident.
As a trusted advisor, mortgage professionals can assist their clients in protecting themselves against fraud. For example, being able to understand and explain the tools they can use to protect their identity and their credit reports offers a great deal of assistance. Fraud alerts and credit freezes are two smart ways consumers can keep criminals away from their private information. Other simple ways to advise them to protect themselves are to guard the information they share online or over the phone, order and review their credit report periodically, and refuse to share their social security number except when absolutely necessary.
Overall, mortgage fraud is a serious crime that doesn't seem to be going away anytime soon. Mortgage professionals need to continue to look for ways to detect and reduce their risk of mortgage fraud.
Credit reports and credit scores are a key driver of whether mortgage professionals are able to offer the borrower a loan, and the amount of flexibility that consumer has with the type of loan they choose. In Data Facts' many years in business, questions about credit scores far outweigh every other topic.
Mortgage originators will undoubtedly lose a portion of their borrowers because of poor credit scores. The good news is there are simulations that help know how to advise these borrowers on increasing their credit score. With proper usage, these simulations can save 1 in 3 loans that would otherwise be lost due to credit scores!
Changes at the Bureau Level
While historically credit bureaus don't alter their formulas, layouts, or the types of data they include, there have been two changes recently that have had a big impact on credit reports. One is the change that makes it harder for medical bills to mess up a consumer's credit. As medical debt was the main cause of millions of consumers' credit scores being low, this was a well-received change.
The second change was the addition of trended data on the mortgage credit report. More in-depth information was added to the credit report to separate the "transactor" consumers from the "revolvers". There were many FAQ's about mortgage trended data in the beginning that made this a challenging change for mortgage professionals.
Mortgage lenders constantly strive to keep costs down, and pulling all three bureaus, or tri-merge reports, can end up costing them big. After all, any credit reports that don't result in a loan are unrecoverable costs.
That's why some lenders have decided to only pull one bureau and then, if the credit looks promising, upgrade the credit report into a tri-merge. Cutting costs this way can save tens of thousands of dollars for the organization.
Regarding customer education
Many of our clients ask about how to explain the nuances of credit reports and credit scores to their clients. Showing them how to read their credit report, being aware that pulling a mortgage credit inquiry can trigger phone calls and emails from other lenders, and explaining how collections affect their credit are three of the main areas customers need information.
Lending institutions already have certain processes in place to decide whether or not a consumer or business can qualify for a loan.
Decision makers choose the types of verifications they put in place to a large degree. Certain data is required, such as a credit report, pay stubs, tax return verifications, and employment history. Others are not as clear cut, and lenders must balance the risk of missing information with the costs of adding new reports and the sometimes longer turnaround times to get additional information returned to them.
Social security verifications are one of them. With identity fraud being widespread, lenders who pull credit reports might see discrepancies that need a closer look. Social security verifications are directly from the Social Security Administration and give evidence that the person is, or isn't, who he's claiming to be.
Fraud verification reports are another smart way to uncover fraud. By understanding fraud, the report can be used to increase or reduce lenders' confidence in their buyer's identity and intention.
A new verification is needed now because of the decision the credit bureaus made recently. Tax liens and civil judgments that were once widely reported on credit reports now go through much stricter regulations before they are reported. Since an estimated 12% of the population have either a lien or judgment, many lenders still value this information. The bankruptcy, lien, and judgment report shows lenders the information that might now be missing from the credit report. This report helps them build a clearer picture of the borrower's finances.
It is a moving target for lenders to know if they are using the right verification tools to ensure best lending practices.
While many mortgage verification services aren't absolutely required, they do help immensely with our next topic.
The mortgage industry is highly-regulated and it seems that there are new guidelines and requirements popping up every few months. If you are a lender concerned about the cost of lending compliance, you are being smart and proactive.
Instead of getting mired in the money being spent, lenders need to be savvy and find compliance tips for lenders to get more bang for their buck.
Creating and sticking to a compliance plan is the main way to ensure the initiative's success. Choosing the right tools is essential as well. One of the best ways to reduce costs and ensure compliance is by taking advantage of technology. Proactively seeking out technologically advanced ways to accomplish more goals with fewer resources allows processes to be streamlined, and mortgage compliance to be reached faster and with less difficulty.
The current mortgage lending industry environment demands strong vendor partners. A simple, low-priced vendor you never get to speak with just doesn't cut it anymore. Being able to get all the lending products you need from one vendor is one way to keep pricing down and the level of compliance up. Smart vendor management will only increase in importance as part of maintaining compliance and streamlining processes.
The mortgage lending industry is fraught with challenging processes, ongoing operational costs, and complex rules and regulations. Failing to take the time to understand the current and prepare for the upcoming shifts in industry dynamics that are sure to come leaves lending institutions open to the risks of failing clients, losing business, and becoming less competitive in the marketplace.
A multi-pronged strategy that addresses issues like mortgage fraud and compliance issues, and then following the plan closely, maximizes the chances of being able to grow and thrive in this marketplace and in the future. Choosing the right vendor partners is also paramount in servicing borrowers promptly and smoothly.
Being privy to the tools that can help educate you as a mortgage professional as well as your borrowers will assist in paving the way toward long-range viable and survivability in the unpredictable, sometimes inhospitable world we call the mortgage industry.