Assets play an important role in determining how much home a borrower can afford – But how much asset history should lenders review?
Until recently, lenders have taken a “less is more” approach to collecting asset documentation, and understandably so. The process of requesting, reviewing and (often) re-requesting statements can be cumbersome and time-consuming for all involved. Whether borrowers scan paper bank statements or upload PDFs retrieved from online banking, they must provide lenders with all statement pages, including those intentionally left blank by the financial institution. Chasing down missing pages can require several days of back-and-forth correspondence between processors and borrowers, extending loan cycle times and frustrating borrowers. To minimize the pain, legacy loan manufacturing processes typically collect only as many months of asset statements as are required by investors — often just two months for conventional and government loans.
Changing the Game: Digital Verification of Assets
But times have changed, and today more and more lenders are eschewing the paper chase altogether in favor of digital verification of assets (VOA), a method in which borrowers grant lenders access to retrieve asset data directly from their financial institutions instead of submitting paper or PDF statements. Digital VOA is a simple, efficient and cost-saving upgrade to traditional asset verification — and now that its use has become mainstream, it’s time for lenders to rethink how much asset history they should request during the VOA step.
Modern financial data aggregation makes it possible for VOA providers to furnish as much as two years of asset history in a single payload. At first blush, this may seem like overkill; does a lender really gain anything by harnessing all that extra data for a VA loan that only requires two months of bank statements? Thanks to the mortgage industry’s rapidly evolving understanding of the power of asset data, the answer is a resounding “yes.” Our use of asset history has evolved beyond simply understanding how much liquid cash borrowers have today, what their average monthly balance is and whether they bounced any checks over the last month. With 12 to 24 months of direct-source, digitally verified asset data, today’s mortgage lender can:
- Satisfy VOA requirements for Fannie Mae, Freddie Mac, U.S. Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), U.S. Department of Agriculture (USDA), non-qualified mortgage (non-QM) and jumbo loans;
- Satisfy verification of income (VOI) requirements for Freddie Mac loans using direct deposit history, thereby eliminating the need to order tax transcripts or collect paystubs;
- Create homeownership opportunities for more borrowers by participating in Fannie Mae’s positive rent payment history program; and
- Perform proprietary analysis of borrower cash-flow to inform credit risk assessments and pricing.
Asset Data: Now it’s Easy to Keep it Fresh
It’s important to note that all data aggregators are not created equal. Look for a VOA provider that doesn’t charge extra for extended asset history and be sure to ask about available refresh options that will make long asset history even more powerful. Consider, for instance, the multitude of scenarios that require lenders to take another look at assets between loan qualification and loan closing. Maybe closing delays have caused the original asset data to become aged. Perhaps the loan is associated with a construction project that could take an unknown number of months to complete. Or maybe the lender just needs to verify the source of a borrower’s earnest money deposit. In these cases, lenders will benefit from being able to refresh the asset data without asking consumers to repeat the VOA process.
Long asset history may not be available for every borrower. Some financial institutions place limits on the depth of transaction history they share with data aggregators. To ensure the highest possible success rate in ordering long asset history, choose a VOA provider that has access to a broad network of financial institutions through multiple, redundant data aggregation partners.
I’d love to hear your thoughts on long asset history. Drop me a note brian@formfree.com.