PERSON OF THE WEEK: Rosie Biundo is senior director of product marketing, verification services for Equifax. MortgageOrb recently interviewed Biundo to get her views on whether repurchase demands will ever go away – and what lenders can do to avoid the dreaded ‘buyback’ in the future.
Q: According to industry projections, mortgage delinquencies are estimated to drop for the fifth consecutive year in 2014. Are non-performing loans a thing of the past, or do they remain a significant issue for lenders today?
Biundo: The current volume of loans being returned for some type of data deficiency is significant, and unfortunately, non-performing loans will be an issue for lenders in the foreseeable future.
According to Fannie Mae, a top underwriting deficiency of performing and non-performing loans is income misrepresentation resulting from inaccurate or insufficient data and calculation errors at the time of loan origination. Prior to 2007, borrowers could state their income on a loan application if they were employed. In some instances, ifÂ borrowers had a high enough credit score, they weren't even required to include an income on the loan application. That era ended in 2008, but the industry is still dealing with high volumes of under-documented loans made between 2004-2007 – not coincidentally, a period in which loan originations hit record numbers. Basically, the issue has not been completely resolved, and there will be more repurchases in the future if lenders don't ensure underwriting due diligence.
Q: So if repurchase demands are never going away, how can lenders continue to avoid them now and into the future?
Biundo: There are multiple avenues a lender can take to deal with loan putbacks depending on the severity of the loss. These include increasing loan loss reserves, hiring a third party to review, and re-underwriting the file or handling the matter with internal resources.
As critical as it is, verifying borrower information is cumbersome and involves faxing and mailing pay stubs to employers for validation or calling them and hopefully speaking with the right person who can verify the borrower's information in the payroll system. Leveraging third-party verification providers on all elements of the loan mitigates risk, helps avoid future repurchases and removes the burden from the lender. No longer does the underwriter have the added responsibility of manually verifying information, potentially resulting in error – either intentionally or by human error.
In addition, the time and costs associated with a manual verification process can be eliminated. If lenders can prove that they did everything possible to verify the loan information and ensure the borrower's ability to repay, investors will have a much more difficult time forcing them into repayments later.
Q: What role does Equifax play in this process?
Biundo: Lenders must be able to rely on providers that have access to the employment and income data directly from employers. Equifax and its Point in Time leverage The Work Number database, which provides instant access to more than 230 million employment and income records. In addition, year-to-date income information is available as far back as 2006, and reports are delivered immediately. If the borrower's information is not on The Work Number database, the request is automatically sent to a specialized Equifax agent for follow-up.
Our workflow technology is used to schedule tasks, trigger reminders, and ensure that the information is received from the employer in a timely manner and stringent quality control processes provide the assurance that the information is complete. Ultimately, this allows the system to do the work for you, enabling the lender to dedicate more time to other processes.
Q: Equifax recently announced enhancements to its Point in Time solution. What is it, and what does it do?
Biundo: Point in Time is a retro income verification service that validates and documents a borrower's employment and income at the point of loan funding. It was created in response to market demands for loan-level documentation to investigate repurchases and mortgage insurance rescissions.
The solution enables lenders and servicers to retroactively analyze loan-level data to ensure the appropriate handling of repurchase requests and reduce losses from unnecessary buybacks. It quickly verifies a borrower's income at the point of loan funding by tracking and documenting agent progress and findings without compromising data security. Enhanced and fully integrated with our Spectrum platform, Point in Time reduces fraud, improves overall loan quality and cycle times, avoids capacity issues, and reduces costs.