Freddie Mac expands use of bank account data for verifications

Freddie Mac on Thursday confirmed an earlier promise by the head of its single-family division that it would be further extending the types of borrower information that bank data could be used to verify.

Starting June 1, mortgage companies selling loans to the government-sponsored enterprise will be able to use bank data for a 10-day pre-closing employment check as well as to verify income and assets. The move builds on a prior initiative in which Freddie began allowing mortgage companies to use bank information to check income and assets in the initial application process.

This moves Freddie closer to what has long been a holy grail for both it and its competitor, Fannie Mae: a quick, digital verification of key underwriting data for which the employment piece in particular has been a stumbling block.

“The verification of employment, that’s the challenge. You’re not getting 100% of those done through a known or verifiable source. You’re getting a lot of those done with pay stubs, and they’re pretty good, but people can falsify them,” said Jeff Bode, president of Mid America Mortgage, in an interview. “If you have a source that’s known to be accurate, that’s the be-all, end-all on employment. The solutions to verify deposits are really good.”

The 10-day pre-closing check can be used if a consumer has direct deposit for their pay and their institution participates in data-sharing efforts. In some cases, companies also make payments in the name of a benefits provider rather than their own name, which can complicate employment validations.

For those situations, vendors that facilitate access to separate employment checks through agreements with payroll providers have been increasingly expanding their access to data sources, sometimes in partnerships like one Truework and Plaid announced Thursday. Truework has been primarily an income and employment data aggregator working to facilitate direct access to borrower-permissioned information without having to go to a payroll provider. It’s working on facilitating similar access to bank data. Meanwhile, Plaid has primarily been facilitating access to bank data but also has an income product that facilitates permissioned access to a payroll provider’s’ information. The deal struck between the two companies connects Plaid’s income offerings with Truework’s data. That broadens the reach of both companies into the income and employment space in a move that, like Freddie’s, shows how technology is evolving toward the point where an increasing number of borrowers could have their information digitally validated.

“Freddie is approving getting either income or employment from deposit information here, and it’s a great example, I think, of how the industry’s generally innovating when it comes to income and employment,” said Ryan Sandler, co-founder and CEO of Truework, in an interview. Truework has received vendor approval for some digital verifications from Fannie Mae and has been going through the vendor approval process with Freddie Mac, Sandler said.

Where available, Freddie’s digital pre-closing employment check could add to the time and cost savings that have existed for other types of bank account-based verifications of underwriting data.

Technologies like the onesFreddie uses to digitally verify assets and income has shaved up to 15 days off loan processing cycles, translating to cost savings as high as 30%, according to study published in late 2020 by the GSE.

“If you’ve bought a home, you might have had somebody request your pay stubs, W-2s, and all pages or more of your bank statements. That’s a pretty significant ask for the consumer,”  said Kevin Kauffman, vice president of client and partner delivery in Freddie Mac’s single-family division, in an interview. “Efficiency gains in that area, from the lender standpoint, can eventually result in a reduction of cost to the industry, and that has a result of a positive, reduced cost to a consumer down the line.”

Expanded capabilities for digitally verifying underwriting data could potentially create a set of loan information that could be recorded on indelible ledgers, according to Bode.

“They could be building their own blockchain, in my opinion,” Bode said.

However, considerations around data governance and regulation would have to be addressed first before vendors or the GSEs would be comfortable with it, said Sandler.

“A blockchain is immutable, it’s hard to make changes. What if something goes wrong? How does consent work? I think there’s pieces of that I think a lot of people in the industry are still figuring out, but I think at some point it’ll definitely make sense,” Sandler said.