Automated Income Assessment (Employer Data) with Loan Product Advisor

Transcription

1 Automated Income Assessment (Employer Data) with Loan Product Advisor Introduction This reference is intended to assist you with using our automated income assessment (employer data) offering, a part of asset and income modeler (AIM) our solution for automating the manual processes of assessing borrower assets and income, and provides information to help you understand: What Is the automated income assessment (employer data) with Loan Product Advisor? How the Assessment Works (high-level view) Eligibility Requirements Loan Product Advisor Results Income Representation and Warranty Relief Details on Using the o o o Initial Setup Steps for Originating Loans Feedback Messages Additional Tips and Information Where to Get Help Appendix A: Summary of Automated Income Assessment Results and Examples What Is the automated income assessment (employer data) with Loan Product Advisor? The automated income assessment (employer data) with Loan Product Advisor uses the resources of a third-party verification service provider Equifax Verification Services (The Work Number ) (the service provider ) -- to access and assess income data. The income data can help you automate your income calculations and determine if borrower income verification requirements are met on conventional loans. Results from the automated income assessment are displayed on the Loan Product Advisor Feedback Certificate. This approach provides operational efficiencies through system-driven optimization of the collection and assessment of data relating to borrower s income. It also allows for potential relief from Freddie Mac s enforcement of certain selling representations and warranties related to the borrower s income when there is sufficient employer data available through Equifax Verification Services (The Work Number). Income that cannot be assessed using the automated income assessment capability can still be used to qualify the borrower, provided it is verified and meets the requirements of Freddie Mac Single-Family Seller/Servicer Guide (Guide). How the Assessment Works The following process flow provides a high-level view of how the automated income assessment works. Details are provided under the Details on Participating in the Automated Income Assessment (Employer Data) with Loan Product Advisor section.. January 2019 Page 1

2 Loan Product Advisor automatically sends a request to the service provider for income information, however, an income verification report is only returned when: An income verification report was ordered, and A match was made to identifying information on the request. January 2019 Page 2

3 Eligibility Requirements To take advantage of the automated income assessment and potential relief from Freddie Mac s enforcement of certain selling reps and warranties related to the borrower s income, the loan must be submitted to Loan Product Advisor Version S or higher and meet the requirements summarized below. For complete requirements, refer to Guide Chapter General Eligibility Requirements Topic Requirement Eligible Products Conventional mortgages Loan Purpose Purchase Refinance, including Freddie Mac Relief Refinance SM Open Access Mortgages and Enhanced Relief Refinance Mortgages Eligible Income Sources (As described in the Guide) The following income sources are eligible for automated income assessment: Base non-fluctuating employment earnings and fluctuating hourly employment earnings Overtime income Bonus income Commission income (if less than 25% of the income from the commissioned employment) The following employment earnings are not eligible for automated income assessment: Military pay Earnings with the following characteristics: o Earnings of a borrower employed by a family member, the property seller, real estate broker or other interested party to the transaction o Employed income from foreign sources o Income reported on Internal Revenue Service (IRS) Form 1099 Note: Income such as self-employed income, rental income, alimony, child support, etc. that cannot be assessed will not be eligible for income rep and warranty relief; however, the income source may still be used as qualifying income provided it is documented and verified in accordance with the Guide. January 2019 Page 3

4 General Eligibility Requirements Topic Requirement Income Verifications Verifications must meet the following requirements: The method used to produce the income verification report must be an automated process whereby the data for the report is accessed directly from the service provider s electronic database of employer-provided income information. You must confirm that the information in the income verification report is for the correct borrower and employer. If the borrower took a temporary leave of absence, as of the income verification date, the borrower must have returned to work for at least 30 days following the leave. Age of Verifications All income verifications must be dated no more than 120 days before the Note Date, or Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages. Automated Underwriting You must: Ensure that the most current version of the income verification report is used by Loan Product Advisor. If you obtain an updated report, the loan must be resubmitted to Loan Product Advisor to make sure the most current information is being assessed. Evaluate the income verification report, the information contained in Form 65, Uniform Residential Loan Application, including the borrower s income and employment representations, and any other documentation in the mortgage file. Submit to Loan Product Advisor the income amount you used to underwrite the loan. Have no knowledge, information or documentation that contradicts a reasonable expectation of continuance of income or probability of consistent receipt of income for at least the next three years. Investigate and resolve any inconsistent or contradictory information between the income verification report and the mortgage file, and if necessary, you must update information in Loan Product Advisor based on such information. Delivery Loan must be delivered through Loan Selling Advisor as a Loan Product Advisor mortgage with an LP AUS Key Number. January 2019 Page 4

5 Documentation Requirements If the feedback message(s) indicate Eligible for income rep and warranty relief Not eligible for income rep and warranty relief or Unavailable And Income source is an eligible income source reported on the income verification report Income source is an eligible income source that was not reported on the income verification report, and/or or an income source other than the eligible sources, but used to underwrite the loan N/A Then The income verification report is acceptable documentation for the income and must be maintained in the mortgage file. Obtain and maintain in the mortgage file verification of the borrower s current employment (10-day pre-closing verification) as required by Guide section (d). Verify and document the income source in accordance with the Guide and maintain the documentation in the mortgage file, OR Remove the income and resubmit the loan to Loan Product Advisor. Verify and document the income source in accordance with the Guide and maintain the documentation in the mortgage file. IRS Form 4506-T Notwithstanding the requirements of Guide Section , for mortgages that receive an income rep and warranty result of Eligible on the last Feedback Certificate, if all the income of a borrower is from an eligible income source and is on the income verification report, you do not need to obtain and maintain in the mortgage file the following: - IRS Form 4506-T signed by the borrower, or - Commonwealth of Puerto Rico Form 2907 or Form 4506-T, as applicable, signed by the borrower for income that is derived from sources in Puerto Rico, Guam, or the U.S. Virgin Islands and is exempt from federal income taxation under the Internal Revenue Code. January 2019 Page 5

6 Seller s In-House Quality Control Program Notwithstanding the requirements of Guide Sections and , for mortgages selected for pre-closing and/or post-closing quality control review that receive an income rep and warranty result of Eligible on the last Feedback Certificate, you are not required to do the following for eligible income sources that are indicated on the income verification report. Reverify or recalculate the income Obtain IRS income information using Form 4506-T or acceptable alternate form for the assessed income, or Obtain income information using Commonwealth of Puerto Rico Form 2907 or Form 4506-T or acceptable alternate form for the assessed income Loan Product Advisor Results Loan Product Advisor assesses income on an individual borrower-level and income component-level basis (base salary, bonus, commission and overtime). On a loan-level basis, Loan Product Advisor returns one of the following income rep and warranty results on the Feedback Certificate: Result Description Eligible Loan Product Advisor assessed the borrower s income and the Seller is eligible for relief from enforcement of certain selling reps and warranties, described below, related to the borrower s income. Not Eligible Loan Product Advisor assessed the borrower s income and the Seller is not eligible for relief from enforcement of selling reps and warranties related to the borrower s income. Unavailable Loan Product Advisor was unable to assess the borrower s income. This could be due to missing or incomplete information from the service provider or a system being down. The Seller is not eligible for relief from enforcement of selling reps and warranties related to the borrower s income. The Feedback Certificate also provides additional messages associated with the income rep and warranty relief result. The messages provide income eligibility information for all or part of the borrower income assessed by Loan Product Advisor, together with instructions regarding verification documentation. January 2019 Page 6

7 Using the Loan Product Advisor feedback messages, you can determine whether income rep and warranty relief applies to the loan (loan-level relief). To obtain relief, the data on the last Feedback Certificate must be consistent with the data delivered to Freddie Mac. Note: An Income R&W shield on the Feedback Certificate will be available in a future Loan Product Advisor release so you can quickly identify if the loan is eligible for income rep and warranty relief. Income that cannot be assessed using the income verification report may still be used to qualify the borrower, provided it meets the requirements of the Guide. Income Representation and Warranty Relief For mortgages that receive a Loan Product Advisor Risk Class of Accept and an income rep and warranty result of Eligible on the last Feedback Certificate, the Seller is relieved from Freddie Mac s enforcement of the following selling reps and warranties upon delivery of the loan to Freddie Mac: Income Representation and Warranty Relief is granted for Which means Income calculation Income verification report information The accuracy of the income calculations related to eligible income sources that are on the income verification report. The accuracy and integrity of the data represented on the income verification report. Keep in mind, eligibility for income rep and warranty relief applies only to eligible income sources whereby the method used to produce the income verification report (verify the income) is an automated process in which the data for the report is accessed directly from Equifax Verification Services (The Work Number) electronic database of employer-provided income information. Income verified through a manual process is not eligible for automated income assessment. If the loan is not eligible for income rep and warranty relief, it may still be eligible for relief offered through Freddie Mac's selling rep and warranty framework as described in Guide section Note: Refer to Appendix A for a summary of Loan Product Advisor income assessment results and income assessment feedback certificate examples. Details on Using The next several sub-sections cover details to use the automated income assessment, including the initial setup process and steps for using Loan Product Advisor s automated income assessment. Initial Setup To benefit from the automated income assessment offered through Loan Product Advisor, you must first have an agreement for verification services with the service provider -- Equifax Verification Services (The Work Number) or an authorized Equifax reseller -- that authorizes the service provider to share the employment data with Freddie Mac. You are not required to use the automated income assessment. January 2019 Page 7

8 The service provider must produce the income verification report using an automated process whereby the data for the report is accessed directly from the service providers electronic database of employer-provided income information. You must also be enrolled in Audit by Loan Number (ABLN) with Equifax. To enroll in ABLN, you will need to sign an ABLN addendum for Equifax to release their audit copies of their completed verifications to Freddie Mac. Your account representative from Equifax will be able to provide this required addendum. If you do not know your account representative, send an to to request ABLN. Note: If using an authorized Equifax reseller, you will need to follow the process outlined by that reseller. After setup is complete with the service provider, effective January 27, 2019, Loan Product Advisor will offer additional request methods to receive the income verification data from the service provider by adding the unique loan identifier (Report Number) in the request file. You may choose to 1 : 1. Opt-in to the automated income assessment with Loan Product Advisor, which authorizes Loan Product Advisor to automatically obtain income verification reports you have ordered from the service provider for each loan submission using the loan number; or, 2. Opt-in, as described above, and provide Loan Product Advisor with the service provider s unique loan identifier (Report Number) in the Report ID data field to ensure that the report obtained is for that Report Number provided, or, 3. Not opt-in*, provide Loan Product Advisor with the service provider s Report Number in the Report ID data field to automatically obtain the income verification report you have ordered from the service provider for that Report Number provided. 1 Automated Income Assessment with Loan Product Advisor Request Methods Effective: January 27, 2019 If, and, then, Opt-in Opt-in Did not opt-in* Did not opt-in* Report Number is not provided Report Number is provided Report Number is provided Report Number is not provided Loan Product Advisor will automatically request the income verification report(s) using the lender loan number (Loan Number) and borrower(s) social security number (SSN). Loan Product Advisor will request the income verification report(s) using the Report Number and borrower(s) SSN. Note: The loan number will not be used. Loan Product Advisor will request the income verification report(s) using the Report Number and the borrower(s) SSN(s). Note: This will allow lead numbers, TPO loan numbers, or the Loan Product Advisor ID to be used rather than the lender loan number. Loan Product Advisor will not request any income verification report(s) for that submission. *As a Seller/Servicer, even though you did not initially complete and submit the Loan Product Advisor Automated Income Assessment-Equifax Opt-in Form, your subsequent provision of the Report Number, like the earlier formal opt-in process, will constitute your authorization for Loan Product Advisor to automatically obtain income assessment reports from Equifax as part of the automated income assessment capability. January 2019 Page 8

9 Steps for Originating Loans Using Automated Income Assessment To originate loans that may be eligible for income rep and warranty relief, you must complete the steps outlined below. Based on your organization s business processes, the order in which you complete the steps may vary. Step 1: Order the Income Verification Report from the Service Provider As part of your process for gathering loan application data and authorizations, also obtain the borrower s authorization to receive the borrower s income information from the service provider and to share the information with Freddie Mac. After you have obtained the borrower s authorization, order the income verification report from the service provider. Step 2: Reconcile the Income Verification Report(s) Using an automated process, the service provider generates the income verification report from their database if the data is available. The automated process can be used to verify income employers who currently provide information to The Work Number database. If income data is not available from The Work Number database, the service provider will notify you. After you receive the report(s), review the information and address any inconsistent or contradictory information between the report(s) and the mortgage file. For example: Does the borrower s identifying information match the loan application (employee name, SSN, address)? Do the employer and dates of employment match the loan application? Does the borrower s income type match the loan application? Does the borrower s payment frequency match the loan application? Is the borrower s income amount consistent with the amount disclosed on the loan application? Note: All income verifications must be dated no more than 120 days before the Note Date, or Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages, and may contain up to three years of data. January 2019 Page 9

10 The following is an example of an income verification report that will be provided to you from the service provider: Reference Number: The Report Number for Equifax Verification Services January 2019 Page 10

11 Step 3: Complete Loan Product Advisor Loan Data Entry and Submit Once you have reviewed the report(s) and addressed inconsistencies, complete loan data entry in Loan Product Advisor. Keep the following in mind when entering data: 1. Income must be entered in Loan Product Advisor by income type for each borrower for Loan Product Advisor to make an accurate assessment. Enter the borrower s gross monthly income amount that was used to underwrite the loan. 2. Loan Product Advisor cannot assess income entered under secondary employment income when assessing the borrower s income. Secondary employment income must be added to the borrower s primary income earnings to be included in the income calculations. Applicable primary and secondary income must be included in the following primary income fields to be assessed: - Base employment income (include both fluctuating and non-fluctuating employment earnings) - Bonuses - Overtime - Commission (if less than 25% of the income from the commissioned employment) For example, If Borrower Earns $5,000 from primary employment (base earnings) $1,000 from secondary employment (base earnings) $6,000 from primary employment (base earnings) $1,000 from secondary employment (commission) $8,000 from primary employment (base earnings) $1,000 from primary employment (bonus) $2,000 from secondary employment (base earnings) Enter $6,000 in the primary Base Employment Income field $6,000 in the primary Base Employment Income field $1,000 in the primary Commission field $10,000 in the primary Base Employment Income field $1,000 in the primary Bonuses field 3. For direct access Loan Product Advisor users when providing the Report Number: - On the Request Services page in Loan Product Advisor, select the Request an Automated Underwriting Assessment check box. - Select the Request Verification Report checkbox, the borrower, verification type, and verification company and enter the Reissue ID/Report ID located on the service provider s income verification report. - Click Add Request, Submit and then Confirm Submit. January 2019 Page 11

12 After you have entered all the information, click Submit. Select Request Verification Report. Select the applicable borrower from the drop down. Select Income. Select the applicable Service Provider Enter the Report Number provided in the Income Verification Report from the Service Provider. Select Add Request to add the request information to the Order Summary. To delete a request from the Order Summary, click on the trash can. The Order Summary section displays the order history, including prior Reissue Key(s). January 2019 Page 12

13 When you click Confirm Submit, Loan Product Advisor sends the request to the service provider s system. System-to-system integration users: From your system, submit the loan to Loan Product Advisor to begin the assessment. Loan Product Advisor sends a request based on the applicable information provided in the Automated Income Assessment with Loan Product Advisor Request Methods. The service provider must match the information provided in the request to release the report data to Loan Product Advisor. If a match is made, Loan Product Advisor receives the report and completes an analysis on the income as a part of its assessment. Income is derived on an income component-level (base, bonus, commission and overtime) basis. If a match is not made, you will receive a message indicating Loan Product Advisor was unable to process the report for an individual borrower. Step 4: Review the Loan Product Advisor Results Messages from the automated income assessment are returned in the Employment & Income section of the Loan Product Advisor Feedback Certificate regarding: An indication of eligibility for income rep and warranty relief (loan-level relief) The income amount derived by Loan Product Advisor Refer to Appendix A for a summarized assessment and documentation chart with Feedback Certificate examples. Step 5: Deliver the Loan to Freddie Mac When you are ready to deliver the loan to Freddie Mac, you must deliver it through Loan Selling Advisor with the LP AUS Key Number. Loan Selling Advisor confirms that the data from the last Loan Product Advisor Feedback Certificate is consistent with the data delivered in Loan Selling Advisor, and when applicable, provides rep and warranty relief from certain selling reps and warranties related to the borrower s income. January 2019 Page 13

14 Prior to delivery, Loan Quality Advisor may be used as a supportive tool for managing the income rep and warranty relief eligibility that was determined in Loan Product Advisor. After delivery, Loan Coverage Advisor may be used to track income rep and warranty relief. Feedback Messages For a list of feedback messages associated with the automated income assessment, refer to Loan Product Advisor automated income and asset Feedback Messages. Additional Tips and Information Employment Verifications The lender must obtain the 10-day pre-closing employment verification outside of the automated income assessment capability offered by Loan Product Advisor. Rep and warranty relief is not granted for the required employment verification. Verification Report Loan Product Advisor submits a request to the service provider on every submission, however, new data will not be returned unless you order a new report. For example, if the borrower received a raise and you want Loan Product Advisor to consider the raise in its assessment, you need to order a new income verification report and resubmit the loan to Loan Product Advisor. Where to Get Help For questions related to the automated income assessment, please contact your Freddie Mac representative or Freddie Mac s Customer Support Center (800-FREDDIE). Also, visit the Asset & Income Modeler (AIM) web page. For questions related to your service provider s system, contact your respective representative(s). This document is not a replacement or substitute for the information found in the Freddie Mac Single-Family Seller/Servicer Guide and/or terms of your other Purchase Documents Freddie Mac January 2019 Page 14

15 Appendix A: Automated Income Assessment Results and Examples Summary of Automated Income Assessment Results (Employer Data Income) The following chart provides a summary of automated income assessment results and the messages returned to confirm income rep and warranty relief eligibility and documentation requirements. Loan Product Advisor Feedback Messages Income Documentation Income Rep and Warranty Result Overall Assessment Borrower Income Assessment Eligible Income Sources Reported on the Income Verification Report Income Not Reported on the Income Verification Report and/or Other Income Sources 1 Eligible Based on Loan Product Advisor s overall assessment, the loan is eligible for income representation and warranty relief. The loan does not have to be resubmitted with the derived income amount to maintain income representation and warranty relief. (Message 24) At the borrower/employment level, Loan Product Advisor returns: The total derived income amount (Message 8D) The income amount derived by income type (base, overtime, bonus, etc.) (Message 8G) Document with the following: The third-party report received from the service provider (Message 8V) 10-day pre-closing verification of borrower s current employment (Message CZ) IRS Form 4506-T (or an acceptable alternative form), however not required for a borrower if all of that borrower s income is from an eligible source and is on the income verification report (Message 1K) Verify and document the income per the Guide for the applicable income type (various messages) Not Eligible Based on Loan Product Advisor s overall assessment, the loan is not eligible for income representation and warranty relief; however, it may be eligible for relief offered through Freddie Mac's selling representation and warranty framework. (Message 23) At the borrower/employment level, Loan Product Advisor returns: The total derived income amount (Message 8D) The income amount derived by income type (base, overtime, bonus, etc.) (Message 8G) Verify and document the income per the Guide for the applicable income type (various messages) Verify and document the income per the Guide for the applicable income type (various messages) 1 Any eligible income sources not reported on the income verification report and/or an income source not listed as an eligible source for assessment (e.g., alimony, child support, earning of a Borrower employed by a family member or by the property seller, real estate agent or other interested party to the transaction, employed income from foreign sources, income reported on IRS Form 1099, military pay, etc.). January 2019 Page 15

16 Appendix A: Automated Income Assessment Results and Examples Income Assessment Feedback Certificate Examples The following Feedback Certificate Employment & Income section examples display messages you may see in your results. For a complete list of feedback messages associated with the automated income assessment, refer to Loan Product Advisor automated income and asset Feedback Messages. Example 1 Loan Eligible for Loan-Level Income Rep and Warranty Relief (One Borrower) The loan was submitted with the following income: Base Employment Income - $12,501 Commissions - $1,000 The Feedback Certificate indicates the loan received an Accept Risk Class. The feedback messages in the Employment & Income section (below) indicate: a) Based on the overall assessment, the loan is eligible for income rep and warranty relief (Message 24). b) Documentation requirements: The third-party report (income verification report) is sufficient documentation to support the income (Message 8V). A 10-day pre-closing verification from the employer (Message CZ) and signed IRS 4506-T (Message 1K) are required, however, the signed IRS 4506-T is not required for a borrower if all the income of that borrower is from an eligible income source and is on the income verification report. c) The total amount of derived income is $10,706 (Message 8D). Note: The derived income is less than the submitted income. Because the derived income supports the loan, no further action is needed. d) The source and amount of the borrower s derived income: base income and commission (Message 8G). January 2019 Page 16

17 Appendix A: Automated Income Assessment Results and Examples Example 1, continued a) b) c) d) b) January 2019 Page 17

18 Appendix A: Automated Income Assessment Results and Examples Example 2 Loan Not Eligible for Loan-Level Income Rep and Warranty Relief (One Borrower) The loan was submitted with the following income: Base Employment Income - $22,501 Overtime - $1,500 Commissions - $1,000 The Feedback Certificate indicates the loan received an Accept Risk Class. The feedback messages in the Employment & Income section (below) indicate: a) Based on the overall assessment, the loan is not eligible for income rep and warranty relief (Message 23). b) The total amount of derived income is $10,706 (Message 8D). c) The source and amount of the borrower s derived income: base income and commission (Messages 8G). d) Reason certain income was not assessed: Overtime income was not assessed due to missing or insufficient years of income on the income verification report (Message 78). e) Informational message on submitted income: Submitted income is not within a reasonable tolerance, thus the income was not eligible for income rep and warranty relief (Message GD). Consider reviewing income information in the loan file, then adjusting the income and resubmitting the loan, if applicable. f) Documentation requirements: The traditional documentation requirements apply to this loan. January 2019 Page 18

19 Appendix A: Automated Income Assessment Results and Examples Example 2, continued a) b) c) d) e) f) January 2019 Page 19

20 Appendix A: Automated Income Assessment Results and Examples Example 3 Loan Eligible for Loan-Level Income Rep and Warranty Relief (Three Borrowers) The loan was submitted with the following income: Base Employment Income - $1,200 (Alice) Base Employment Income - $1,200 (Dad) Base Employment Income - $1,200 (Mom) The Feedback Certificate indicates the loan received an Accept Risk Class. The feedback messages in the Employment & Income section (below) indicate: a) Based on the overall assessment, the loan is eligible for income rep and warranty relief (Message 24). b) Documentation requirements: The third-party report (income verification report) is sufficient documentation to support the income (Message 8V). A 10-day pre-closing verification from the employer (Message CZ) and signed IRS 4506-T (Message 1K) are required for each borrower, however, the signed IRS 4506-T is not required for a borrower if all the income of that borrower is from an eligible income source and is on the income verification report. In this example, no income was derived for Mom Freddie. You can document her submitted income, or alternatively, you do not need to document her income if you remove her income and resubmit. c) The total amount of derived income for each borrower (Message 8D). In this example, no income was derived for Mom Freddie, but the derived income from the other two borrowers was sufficient. d) The source and amount of the borrowers derived income: base income (Message 8G). January 2019 Page 20

21 Appendix A: Automated Income Assessment Results and Examples Example 3, continued a) b) c) d) b) This document is not a replacement or substitute for the information found in the Freddie Mac Single-Family Seller/Servicer Guide or terms of your Master Agreement or other Pricing Identifier Terms Freddie Mac January 2019 Page 21