Freddie Mac’s Digital Verification: What It Means for the Mortgage Industry
Starting June 1, Freddie Mac will allow mortgage companies to use bank data for a 10-day pre-closing employment verification—building on prior income and asset checks—to enhance digital underwriting accuracy, though challenges remain with payment complexities, prompting partnerships like Truework and Plaid to expand access to borrower-permissioned employment and income data and advance industry innovation in digital verification.
Freddie Mac recently confirmed that, starting June 1, mortgage companies selling loans to the government-sponsored enterprise (GSE) will be able to use bank data for a 10-day pre-closing employment check, in addition to verifying income and assets. This builds on a previous initiative where Freddie allowed the use of bank information to check income and assets during the initial application process.
This development brings Freddie Mac closer to the goal of quick, digital verification of key underwriting data, particularly employment, which has historically been a challenge. Jeff Bode, president of Mid America Mortgage, noted that while pay stubs are commonly used for employment verification, they can be falsified. Using a known, accurate source for employment verification is considered ideal.
The 10-day pre-closing check is applicable if a consumer has direct deposit for their pay and their financial institution participates in data-sharing efforts. However, complications can arise when companies make payments under a benefits provider's name rather than their own, making employment validation more complex.
To address these challenges, vendors are expanding access to employment data sources. For example, Truework and Plaid have partnered to connect Plaid’s income offerings with Truework’s data, broadening access to both income and employment information. Truework focuses on facilitating direct access to borrower-permissioned information, while Plaid primarily provides access to bank data and also offers an income product.
Ryan Sandler, co-founder and CEO of Truework, highlighted that Freddie Mac’s approval of using either income or employment data from deposit information exemplifies industry innovation in digital verification. Truework has received vendor approval for some digital verifications from Fannie Mae and is undergoing the approval process with Freddie Mac.
Freddie’s digital pre-closing employment check, where available, could add to the time and cost savings already seen with other types of bank account-based verifications. Technologies used by Freddie to digitally verify assets and income have reduced loan processing cycles by up to 15 days and cut costs by as much as 30%, according to a 2020 GSE study.
Kevin Kauffman, vice president of client and partner delivery in Freddie Mac’s single-family division, explained that digital verification reduces the burden on consumers to provide pay stubs, W-2s, and extensive bank statements. These efficiency gains can lower costs for lenders and, ultimately, for consumers.
Expanded digital verification capabilities could also enable the creation of loan information recorded on indelible ledgers, such as blockchain. However, data governance and regulatory considerations must be addressed before such solutions are widely adopted. Sandler noted that while blockchain is immutable, questions remain about handling errors and consent, but the industry is moving toward solutions that make sense in the long term.