Freddie Mac automates pre-closing employment verification

Automation option will be available starting June 1

Freddie Mac will now automatically verify borrower employment 10 days ahead of closing, which it says is more efficient than obtaining that information through oral or written verification. The option will be available starting June 1.

To verify the borrower’s employment, Freddie Mac’s asset and income modeler will draw data from bank accounts for direct deposit, with the borrower’s approval, or from payroll data provided by third-party service providers.

It’s the latest move from the government sponsored enterprise that seeks to streamline the closing process. In February, it announced it would automate assessing a prospective homebuyer’s direct deposit income.

The automated processes are part of Freddie Mac’s asset and income modeler which functions within its automated underwriting system. The platform, introduced in 2016, automates parts of the manual process of assessing a borrower’s assets and income.

Freddie Mac started using tax return data to automate the income calculation process in 2019. At the time, Freddie Mac said the capability would free underwriters from doing busy work and allowed them to “focus on the big-picture credit profile of a borrower.”

AIM also extracts pertinent tax data, automating at least part of the arduous process of assessing self-employed borrowers’ income.

Deeper asset history unlocks new lending opportunities

Until recently, lenders have taken a “less is more” approach to collecting asset documentation, and understandably so. It’s time for lenders to rethink how much asset history they should request during the VOA step.

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Freddie Mac says that top-performing lenders are more likely to automate the underwriting process, and doing so helps them close loans more effectively. A 2020 study by the GSE found that the top quartile of lenders, based on their closing cycle time, are more likely to build their processes around automated offerings.

Across the board, lenders who originate mortgages with “digital offerings” were able to shave nine to 10 days off their time to close, on average, the study found.

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