Freddie Mac Updates Third Party Verifications
by Anna DeSimone, President
October 15, 2014, Freddie Mac Issued October 15, 2014, Freddie Mac issued Bulletin 2014-18: Selling Updates. This Single-Family Seller/Servicer Guide (“Guide”) Bulletin announced a range of updates that are itemized in another Compliance Monitor newsletter. Outlined below are the Freddie Mac Selling Guide changes:
37.20: General requirements for verifying documents (10/15/14)
To be acceptable to Freddie Mac, the documents used for written verifications, verbal verifications, third-party verifications and quality control reverification must meet the requirements in Section 37.11(c) and Sections 37.20 through 37.23.
Documents obtained from a foreign country, whether provided by the Borrower or obtained directly by the originator, must also meet the requirements and standards stated in Section 37.11(c) and Sections 37.20 through 37.23. All documents of foreign origin must be filled out in English or the originator must provide a translation, attached to each document, and warrant that the translation is complete and accurate. All foreign currency amounts must be converted to U.S. dollars at the time of translation and it must be clear that the Borrower owned the funds prior to the transfer.
(a) Written verifications
Written verifications must meet all of the following requirements:
• Standard verification forms, such as the original verification of employment (VOE), verification of deposit (VOD), direct verification of Tradelines and Noncredit Payment References, including Mortgage payment history and verification of rental payments must be sent directly from the originator to the Borrower’s employer, depository, creditor or landlord and, upon completion, returned directly from that entity to the originator.
• Facsimile verification forms are acceptable if it is clear from the document that the information was sent by facsimile transmission directly from the source to the originator and are considered to be originals.
• The original documents must not contain any alterations, erasures, correction fluid or correction tape.
• The Seller’s Mortgage file contains legible copies of the originals.
• The copies must have been made by the originator or the applicant directly from the originals. Copies provided by any other source, such as the agent or builder, are not acceptable.
• An electronic verification is a computer-generated document, accessed and printed from an Intranet or Internet, that may be used to verify information such as the Borrower’s employment, income or funds on deposit. This includes on-line bank statements, investment account statements, employment and/or income statements. The Borrower may provide the verification directly, or the originator may obtain it directly from the employer, depository or other institution.
• The Borrower may provide verification of income, employment and assets in the form of a photocopy, facsimile or electronic verification. If the Borrower has provided electronic verifications, photocopies or facsimiles of other verifications, where the originator did not view and copy the original documents directly, the Seller is strongly encouraged to reverify the information through the quality control process.
Documentation and verifications must meet the following requirements:
• Income
• Paystubs or salary vouchers must:
• Be computer-generated or typed (not handwritten) by the employer
• Clearly identify the Borrower as the employee
• Show the time period covered
• Show both the current period and year-to-date earnings
W-2 forms must be:
• Complete
• The employee copy provided by the employer
• Tax returns must:
• Be the Borrower’s copy of the forms filed with the IRS
• Be signed by the Borrower
• Include all schedules and forms required in Sections 37.21 through 37.23
In all cases, information received directly from the IRS is acceptable in lieu of individual federal tax returns and W-2 forms as long as it contains all of the information that would be included in the individual federal tax return.
Although the Borrower may not meet the definition of self-employed as stated in Section 37.13 (b), the Seller must obtain the Borrower’s individual federal tax returns for certain types of income if using the income to qualify the Borrower. These include, but are not limited to:
• Commission income
• Income reported on a 1099
• Income from independent contracting
• Income from employment by a family member, property seller or broker
• Income from employment on a contract basis
Assets
Direct account verifications (i.e., verification of deposit form (VOD)) must:
Identify the issuing institution or administrator, as applicable
• Identify the account owner(s)
• Identify the account number
• Identify the type of account
• Identify account open date
• Identify the current account balance
• Identify the average balance for the previous two months
• Identify any outstanding loans
• If it is a securities account, identify the stocks/securities
• Include the title, signature and phone number of the depository representative who completed the verification
Asset account statements must:
• Identify the issuing institution or administrator, as applicable
• Identify the account owner(s)
• Identify the account number
• Show all transactions
• Show the period covered and ending balance
• Show any outstanding loans
• If a securities account, identify the stocks/securities
• Settlement statements or evidence of sale of assets (bill of sale or HUD-1 form) must:
• Be computer generated or typed
• Identify the Borrower as the seller of the property
• Identify the property sold
• Show the proceeds to the property seller
• Show the disposition of all liens against the property
• Be signed by the buyer and the seller, or their authorized agents
See Sections 37.22(b) and 37.23(b) for accounts that were opened within 90 days of verification, reflect large deposits or have balances that are significantly greater than the previously shown balance.
(b) Verbal verifications of employment
When verbal verifications of employment are required, the Seller must provide Form 90, Verbal Verification of Employment, or a similar written document that includes the following:
• Name of the person who contacted the employer
• Name of the entity contacted
• Name and title of the individual contacted at the entity
• Phone number for the individual contacted. The phone number must be obtained from an acceptable third party source.
• Name of the third party source used to obtain the phone number for the employer (e.g., the phone book, internet, 411 information services, etc.)
• Date of contact
• Dates of employment
• Borrower’s position or title
• Whether the Borrower is currently employed and on active status or on leave
• Additional information that was verified
(c) Third-party employment, income and asset verifications
Employment, income and asset verifications obtained through third-party verification service providers are acceptable. The verifications must be received by the originator directly from the third-party verification service provider. A legible copy of the verification must be retained in the Mortgage file and must contain the following information:
• Third-party income verifications must contain sufficient information to determine stable monthly income in accordance with Section 37.13
• Third-party employment verifications must contain the same information as required for verbal verifications of employment in Subsection 37.20(b)
• Third-party asset verifications must contain the same information as required for direct account verifications or asset account statements in Subsection 37.20(a)
• Notwithstanding the requirements in Subsections 37.20(a) and 37.20(b), when the verification is generated electronically and is not completed or provided by a representative of the employer or the depository institution, as applicable, the representative’s information is not required. If any required information is missing, the Seller must obtain additional documentation to supplement the third-party verification. The Seller is responsible for ensuring the accuracy and integrity of the information provided by the third-party verification services.
(d) Age of documentation
Verifications of employment, income, source of funds and payment history must be dated no more than 120 days before, as applicable the Note Date, the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages, the modification date for Seller-Owned Modified Mortgages, the Conversion Date for Seller-Owned Converted Mortgages or the applicable assumption agreement date and must be used in evaluating the creditworthiness of the Borrower.
Any information verified more than 120 days before, as applicable, the Note Date, the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages, the modification date for Seller-Owned Modified Mortgages, the Conversion Date for Seller-Owned Converted Mortgages or any applicable assumption agreement date, must be reverified.
Verifications made after the Note Date, the Effective Date of Permanent Financing or applicable assumption agreement date do not satisfy the requirements of this section. See Chapter 32 for the requirements for Seller-Owned Modified and Seller-Owned Converted Mortgages. In addition, no more than 10 Business Days prior to the Note Date, the Seller must confirm the Borrower’s employment by obtaining a verbal verification of employment. For a self-employed Borrower, the Seller must obtain a verification of existence of the Borrower’s business through a third party source no more than 30 calendar days prior to the Note Date. Alternatively, the Seller may obtain the verification of employment or the existence of business, as applicable, after the Note Date but prior to the Delivery Date. See Sections 37.22 and 37.23 for additional information.
(e) Quality control reverification
As part of quality control review, Freddie Mac may require, in its discretion, that the Seller reverify the information contained in any Mortgage file submitted to Freddie Mac. Freddie Mac reserves the right to independently reverify the information contained in any Mortgage file.
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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