Freddie Mac Updates Income Assessment Tool To Use Digital Pay Stubs
Says new capability helps lenders calculate borrower income more quickly and precisely.
Freddie Mac said Monday it has updated its automated income assessment tool to include a borrower’s digital pay-stub data.
The tool allows lenders to assess a homebuyer’s income paid through direct deposit. Updating to include pay-stub data “can help lenders calculate income faster and more precisely to improve loan quality, simplify the mortgage process and, most importantly, expand access to credit,” Freddie Mac said.
The enhancement is available to mortgage lenders nationwide through Freddie Mac’s Loan Product Advisor (LPASM) asset and income modeler (AIM). AIM for income using direct deposit provides these cost-saving efficiencies while continuing to meet Freddie Mac’s strong credit underwriting standards, the government-sponsored enterprise said.
This new AIM capability will be available to Freddie Mac-approved sellers using Loan Product Advisor beginning June 7.
“Over the last year, we’ve consistently rolled out innovations to ensure our digital tools are improving speed and efficiency, reducing risk and, ultimately, helping us serve our mission by reaching more qualified borrowers,” said Kevin Kauffman, single-family vice president of seller engagement at Freddie Mac. “Today’s innovation further automates income assessment by using historical direct deposit pay patterns and current gross income from recent paystubs, which can help more families achieve homeownership.”
Freddie Mac said its digital tools and solutions offer lenders cost-effective ways to achieve effective quality control operations. Recent analysis shows that loans originated by lenders leveraging Freddie Mac’s automated offerings are four times less likely to produce defects than loans without these technology offerings, it said.
Process automation is especially beneficial for documenting income, both in the collection and assessment process, which is “vitally important because income verification issues account for nearly one-third of all purchase transaction defects,” Freddie Mac said.
In addition to direct deposit data, AIM can assess income from tax return data for self-employed borrowers, as well as bank account data to identify a history of positive monthly cash flow activity. That can include data from checking, savings, and investment accounts, including those used for direct deposit of income and monthly bill payments, such as rent, utilities, and auto loans.
That data can help first-time homebuyers and borrowers in underserved communities who may not qualify with traditional methods of underwriting. Additionally, account data submitted to assess cash flow can only positively affect a borrower's credit assessment, Freddie Mac said. To help identify opportunities, LPA will notify lenders when submitting this account data could benefit a borrower, it said.