Income Validation Customer Procedures

Transcription

1 Day 1 Certainty Income Validation This document details the FAMC process for utilizing the Income Validation service of Fannie Mae s (FNMA s) Day 1 Certainty initiative. Last Revision Date: 04/27/2017 For Internal Use Only 1

2 Table of Contents A. OVERVIEW (3/2/17) ELIGIBILITY (3/2/17) BENEFIT (3/2/17)... 3 B. PROCESS OVERVIEW (4/27/17)... 3 C. INCOME VALIDATION DETAILS (3/2/17)... 4 D. PROCESS DETAILS (3/2/17) SUBMITTING A VOI REQUEST (3/2/17) RECEIVING VALIDATION RESULTS (3/2/17) RUNNING DO FINDINGS (4/27/17) SUBMITTING A LOAN APPLICATION (3/2/17)... 7 Last Revision Date: 04/27/2017 For Internal Use Only 2

3 A. OVERVIEW (3/2/17) This document details the FAMC process for utilizing the Income Validation service of Fannie Mae s (FNMA s) new Day 1 Certainty initiative. Income Validation/Verification of Income (VOI) is one of the new Desktop Underwriter (DU) Validation Services offered for Conventional loans. It utilizes electronic reports from designated vendors to calculate and validate a borrower s income and compare it to the income amount entered into DU. FAMC provides brokers and Emerging Mortgage Banker (EMB) lenders with validation results early in the loan process so they can require less paper documentation from borrowers and save time! 1. ELIGIBILITY (3/2/17) This feature is available to both brokers and EMB lenders. Only registered or locked Conventional loans run through DU are eligible for Income Validation. The borrower must have had the same employer for at least one year. 2. BENEFIT (3/2/17) The goal of this initiative is to improve efficiency and reduce paper documentation. Validated income results in: Less documentation needed from the borrower, saving time for the borrower, broker/emb lender, and FAMC; and Fewer income-related conditions, improving overall underwriting time. B. PROCESS OVERVIEW (4/27/17) Income verification may only be requested by the lender making the credit decision on a loan (FAMC). The following process enables customers to know if income is validated as early in the process as possible. Customers are encouraged to take advantage of this service before requesting documentation from borrowers, as it is possible that no additional documentation may be needed from borrowers if they qualify. 1. Register or lock the loan with FAMC. 2. Brokered loans that are not on To Be Determined (TBD) properties must be disclosed prior to submitting the VOI Request Form to ensure compliance with the TILA-RESPA Integrated Disclosure Rule (TRID). 3. Submit the VOI Request Form to voi@franklinamerican.com with the Borrower Authorization Form and 4506-T, if applicable. 4. Receive confirmation from FAMC that income verification reports have been completed, as they become available.* 5. Run (or rerun) DO findings, through Q.AUS, to determine if Income Validation is received. ** 6. Submit the loan to FAMC with any income documentation required, per DO findings messages and the FAMC Lending Guide.*** *Underwriter review of the income verification results will not occur until the loan is submitted and received in underwriting. **Brokers/EMB lenders may choose to run DO prior to requesting the VOI, or they may wait until VOI results are received; in either case, the findings must be run with the details from the VOI results to determine which income types and amounts received Income Validation. ***It is suggested, but not required, that the loan not be submitted until validation is determined. If the loan file includes documentation that becomes unnecessary due to income validation, it must still be fully underwritten and conditioned as applicable. Last Revision Date: 04/27/2017 For Internal Use Only 3

4 C. INCOME VALIDATION DETAILS (3/2/17) During the pilot and upon initial rollout, Income Validation will only be ordered by FAMC from the following Equifax services: The Work Number (TWN ) automated Verification of Income (VOI) TWN manual VOI Tax Transcript Service Eligible income types and the corresponding services used to validate them are listed below. Please note that income is validated per borrower, per employer, and per income type. For example, a borrower with base income and overtime might have base income validated but not overtime. Income Type Base Pay Bonus Overtime Commission < 25% Commission 25% Social Security Retirement (Pension, Annuity) Self-Employment Income (Sole Proprietor, Schedule C) DU Validation Service The Work Number VOI / Manual VOI The Work Number VOI / Manual VOI; and 1040 Tax Transcripts (2 years) 1040 Tax Transcripts (1 year) 1040 Tax Transcripts (2 years) Standard turn times for validation services are as follows: The Work Number VOI: automated report is immediate Manual VOI: 1-4 days (note that this is an average and is contingent on employer completion) Tax Transcripts*: normal processing time frames, dependent on the IRS When tax transcripts indicate that a joint tax return was filed, but not all tax filers on the returns are borrowers in DU, DU determines if the tax transcript can be used for validation purposes based on the type of income being validated. Commission income equal to or greater than 25% of the total qualifying income is eligible for validation, even if all tax filers are not borrowers in DU. (This is because the non-reimbursed business expenses calculated from the tax transcripts represent a reduction to income.) Social Security and pension/retirement income is not eligible for validation if one or more tax filers are not borrowers in DU. Self-employment (Schedule C) is eligible for validation using the tax transcript based on a joint tax return if the social security number (SSN) for the borrower in DU matches the social security number associated with the selfemployed borrower reflected on the tax transcripts. *Note: If requesting VOI, tax transcripts should not be ordered separately through Veri-Tax. Last Revision Date: 04/27/2017 For Internal Use Only 4

5 D. PROCESS DETAILS (3/2/17) 1. SUBMITTING A VOI REQUEST (3/2/17) After registering/locking a loan, customers should the completed Day One Certainty VOI Request Form to voi@franklinamerican.com. Brokers must also disclose the loan (unless it is for a TBD property) prior to submitting the VOI Request Form to ensure compliance with TRID. EMB lenders must disclose to borrowers in compliance with TRID. Along with the VOI Request Form, customers must include the completed Borrower Authorization Form and/or the T (for tax transcript requests), depending on the validation service(s) required for the borrower s income type(s), per the chart above. VOI Request Form Include all of the following for each employment/income type: o Borrower/co-borrower name o Borrower/co-borrower SSN (last 4 digits only) o Employer name, address, and phone number; include The Work Number salary key, if applicable, per employer o Income type o Note: If a borrower has more than two income sources, the broker/emb lender may use one of the additional borrower information sections not being used for another borrower, or they may submit a second request form for the additional income sources. Borrower Authorization Form The borrower must sign and date it to grant FAMC consent to order an income verification report. Customers may use their own form or the version FAMC provides in the initial disclosure package to brokers T Please see How To Complete the 4506-T for Personal Tax Transcripts, located in the Lending Guide > Helpful Tools > Resources, for details on completing this form. Request tax transcripts for the number of years indicated by the income type chart above. To determine which year(s) to request, follow these guidelines: o For loan casefiles created on or before April 30 th, the most recent tax transcript must be provided (the current year minus 1). If the prior tax return has not been filed or the transcript is not yet available, the most recent tax transcript is for the current year minus 2. o For loan casefiles created after April 30 th, the most recent tax transcript must be provided (the current year minus 1). Note: If the casefile is created after April 30 th and the borrower has filed an extension and not yet filed their taxes for the previous year, they are ineligible for tax transcripts income validation. If any of the required forms is not fully completed, the request cannot be processed. The broker/emb lender will be asked to supply any missing items or information. Please note that FAMC will close a request if the customer does not respond within 10 days. Please allow 4-5 days prior to loan submission for FAMC to process the request, per turn times. Last Revision Date: 04/27/2017 For Internal Use Only 5

6 2. RECEIVING VALIDATION RESULTS (3/2/17) The FAMC Wholesale Operations Support Team will notify the broker/emb lender once requests for all applicable validation services have been submitted for processing. When the verifications are complete, FAMC will update the loan accordingly and inform the customer which VOIs/transcripts have been completed. If 5 business days have passed and the VOIs/transcripts are not completed by Equifax, FAMC will inform the customer which VOIs/transcripts have been received and which are still outstanding. The customer may choose to wait for income verification or to submit the loan with full income documentation. FAMC will close any request that has been outstanding for 10 days unless the customer wishes to proceed. Please note that the VOI cannot be shared with brokers/emb lenders due to Fair Credit Reporting Act (FCRA) requirements. Brokers/EMB lenders can still view tax transcripts in Q.Image. 3. RUNNING DO FINDINGS (4/27/17) As each from FAMC confirming verification of an income type is received, customers can run Desktop Originator (DO) findings through Q.AUS to determine the eligibility of the income submitted based on the When DO is run, DU obtains an electronic copy of the TWN VOI, manual VOI, and/or tax transcripts ordered by FAMC. Please keep the following in mind: DO must reflect the FAMC loan number and borrower s SSN exactly as they appear on the VOI. The borrower must be an active employee, not on leave or terminated. The FAMC VOI team will complete the Employer Name to match the VOI; the customer will not be able to edit it. Fannie Mae calculates income when DO is run; therefore, FAMC cannot provide the income amount. Note: Running DO findings through DO Direct or through a customer LOS will not return messages related to income relief. Once DO findings are run/rerun, one of the following messages will display per income type, per employer, per borrower. Review each income validation message in full, after each time DO findings are run, for documentation requirements. Validated - DU calculations are greater than or equal to the amount submitted to DU, or less than the amount submitted but within 1% tolerance. The message will indicate that the only documentation needed is the TWN /manual VOI or tax transcripts; it will not display the amount of income calculated by Fannie Mae. o Even if the income is validated, additional documentation may be required in particular cases. For example, certain types of validated Social Security income must still be verified with additional documentation, as specified in the DO message. o When tax transcripts over a 2-year period are used to validate income, DU will identify a decline in income between the 2 years of over 10%. In these instances, DU will offer income relief on the 12-month average instead of a 24-month average. Additional documentation may be provided to support the use of a 24- month average, at the underwriter s discretion. Not Validated - DU calculations are less than the amount submitted to DU by more than 1% tolerance. The message will indicate the amount of income calculated by DU and specify the documentation, in addition to the TWN /manual VOI report or tax transcripts, that must be submitted (to FAMC) to support the amount of income submitted to DU. Last Revision Date: 04/27/2017 For Internal Use Only 6

7 Note: If the income is not validated because the income submitted to DU is higher than the validated amount by 1% or more, and the borrower(s) qualify based on the validated amount, customers can resubmit to DO and report the income as the eligible validated amount. Unable to Validate (TWN /manual VOI report only) - DU is not able to perform income calculations. Note: If the TWN /manual VOI report or tax transcripts do not cover the required number of years, DU cannot validate. Multiple Schedule C Businesses (4506-T Tax Transcript Service only) - When tax transcripts indicate the borrower has multiple Schedule C businesses, DU compares the business name on the tax transcripts to the employer name in DU. DU issues a message indicating the names of the businesses provided in DU that were matched to a corresponding business in the tax return data. DU only uses income from the matched businesses to validate selfemployment income. Note: Each Schedule C business name must be entered into DO exactly as it appears on the tax transcripts. Potential Income From Other Business Structures (4506-T Tax Transcript Service only) - When there is an indication that the borrower has self-employment income from business structures other than sole proprietorship, DU cannot assess the income/loss of the other business(es) and the impact to overall base income; therefore, DU is unable to validate income. 4. SUBMITTING A LOAN APPLICATION (3/2/17) For whichever income type is validated, submit the loan without paper documentation for the validated income (per borrower, per employer, per income type). For any income which is validated and DO findings remain Approve/Eligible, additional documentation should not be required. If any income documentation is needed according to the DO findings, submit it with the loan application. Please also note that any income type that is not eligible/approved for income relief is not necessarily ineligible income for approving the loan. However, full documentation, according to DO findings messages and the FAMC Lending Guide, is required to support the use of the non-validated income amount. Regardless of the amount of income documentation required at loan submission, please set the expectation with borrowers that income documentation could be requested at any time during the loan process. Last Revision Date: 04/27/2017 For Internal Use Only 7