Documenting Disability Earnings as Stable Income

Written By: Stacey Sprain

You may have noticed in the past several months that the agencies have been updating long-known employment and income documentation requirements. These recent guideline updates and changes are likely in response to a discrimination lawsuit that was waged against Bank of America earlier this year claiming that Bank of America imposed ”unnecessary and burdensome requirements” on borrowers who received income because of a disability. “In some cases the bank required statements from doctors” which was seen as intrusive and unnecessary and in direct violation of privacy laws and further in violation of the Fair Housing Act.

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Whether or not you agree with the lawsuit against Bank of America and the reasons behind it, truth be told, it’s always been a struggle documenting the required three year continuance for certain types of earnings, in particular regarding continuance of disability benefit income. So these recent changes are timely and will definitely allow lenders opportunity to meet guideline documentation requirements while allowing certain privacies to be maintained on behalf of borrowers.
Fannie Mae was first to announce revamped employment and income guidelines when they issued Selling Guide Announcement SEL-2012-04 back on May 15th which introduced the following:
New section describing continuity of income policies – this section clearly differentiates the types of income that have a defined expiration date from those that generally do not expire. If the income does not have a defined expiration date, the lender may conclude that the income is stable, predictable, and likely to continue, and is not required to document continuance in the future. On the other hand, for income that does have a defined expiration date, the lender must document a three-year continuance. Fannie Mae has re-categorized long-term disability, interest and dividend income, and Social Security retirement income such that lenders no longer have to document a three-year continuance.

FHA recently issued Mortgagee Letter 2012-15 on August 17th which provides detailed instruction about new documentation requirements for income from Social Security Administration, which includes earnings for Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI), and Social Security Income.

Though FHA still includes verbiage as to a requirement to prove three year continuance from the mortgage application date, they provide a listing of documentation considered acceptable to do so:

“The lender must verify income by obtaining from the borrower any one of the following documents:
• Federal tax returns;
• the most recent bank statement evidencing receipt of income from the SSA;
• a Proof of Income Letter, also known as a “Budget Letter” or “Benefits Letter” that evidences income from the SSA (Please for an explanation of types of letters issued by the SSA); or
• a copy of the borrower’s Social Security Benefit Statement, SSA-1099/1042S.

In addition to verification of income, the lender must document the continuance of this income by obtaining from the borrower (1) a copy of the last Notice of Award letter which states the SSA’s determination on the borrower’s eligibility for SSA income, or (2) equivalent document that establishes award benefits to the borrower (equivalent document).

If any income from the SSA is due to expire within three years from the date of mortgage application, that income may only be considered as a compensating factor.”

The Mortgagee Letter goes on to state that

“If the Notice of Award or equivalent document does not have a defined expiration date, the lender shall consider the income effective and likely to continue. The lender should not request additional documentation from the borrower to demonstrate continuance of Social Security Administration income. Under no circumstance may lenders inquire into or request documentation concerning the nature of the disability or the medical condition of the borrower.”

Based on my own research done while awaiting for the agencies to specifically address income documentation issues, you may find the following helpful when need arises to document implied continuance for disability or other benefit income received from SSA.

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• Proof of Income Letter Borrowers can request and obtain a "Proof of Income Letter" online at The letter can be used as proof of :
o income to apply for a loan or mortgage;
o income for assisted housing or other state or local benefits;
o current Medicare health insurance coverage;
o retirement status;
o disability; and/or
o age.
The Proof of Income letter will arrive in the mail in about 10 days to the address on file for the borrower at Social Security Administration.
If the borrower needs proof sooner and doesn’t have time to wait 10 days or more, he/she can contact their local Social Security Office.

A great deal of disability-related information is now available for the taking right at SSA’s Disability website at

With resources such as the Proof of Income Letter as well as information that can be obtained directly from SSA’s website, there is no longer reason for anyone to request physician letters or to dive too deeply into a borrower’s medical history. This makes it a win-win for everyone.

About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at:

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.