Written By: Joel Palmer, Op-Ed Writer
The Federal Housing Administration (FHA) published a mortgagee letter last month that provides guidance on the use of third-party verification (TPV) services to verify a borrower’s employment, income, and asset information.
The guidance applies to all FHA Title II forward mortgages and Home Equity Conversion Mortgages (HECM). The provisions are effective immediately.
Previous guidance allowed for electronic verifications, but made no specific reference to TPV services. TPV services help eliminate the need to collect pay stubs, W-2s and bank statements.
The guidance included in the mortgagee letter includes:
•Mortgagees must ensure that TPV contractors fully comply with all applicable laws and FHA requirements.
•To verify employment, the mortgagee must obtain direct electronic verification covering two years.
•For most requirements, verification is subject to the borrower authorizing the mortgagee to verify income and employment. In addition, the date of the data must conform with FHA requirements.
•Electronic re-verification employment data must be current within 30 days of the date of the verification.
•For earnest money deposits, it is also required that the information show the average was sufficient to cover the amount of the deposit at the time of deposit.
•For documentation of the source of funds, the mortgagee must obtain direct verification by a TPV vendor of the borrower’s account covering activity for a minimum of the most recent available month.
This latest guidance comes about five years after FHA updated the guidelines for underwriting reverse mortgages. Those guidelines instituted a more detailed credit history as part of the financial assessment. This created a time-consuming process for reverse mortgage processors and underwriters.
Approving TPV vendors will help streamline the process.
Mortgage processors and underwriters can get additional information at www.hud.gov/answers or by calling FHA’s Resource Center at 1-800-CALLFHA (1-800-225-5342).
Lenders can also provide feedback to HUD for 30 days from the date of issuance, which was February 15, 2019. To provide feedback, send comments to the FHA Resource Center at firstname.lastname@example.org.
About the Author
As an NAMP® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.