Fannie Mae recently announced several initiatives centered on its Day One Certainty program, including a new Single Source Validation service that combines automated income, asset and employment verification in a single report.
The idea behind this new service – a key enhancement to the company’s Desktop Underwriter (DU) validation service that is now in pilot and due to be rolled out in 2018 – is to allow lenders seeking to deliver an all-digital mortgage experience to avoid using multiple traditional third-party aggregators of this data, which is crucial to mortgage underwriting, and instead get it directly from the source by way of a vendor that has a direct integration with the source database.
Since rolling out its Day One Certainty program in October 2016, Fannie Mae has so far added 16 providers of income, asset and employment data to its network of approved technology vendors, reports Jeff Walker, senior vice president, single-family business. However, only two are providing a “true” single source validation service thus far.
MortgageOrb recently interviewed Walker to get more details about how Fannie Mae is leveraging automated verification services as part of its Day One Certainty program.
Q: Fannie Mae now has 16 vendors offering verification services through Day One. Of these approved vendors, how many are offering all three services (asset, income, employment)? If I am a lender participating in the program, could I use income verification from one vendor and asset verification from another?
Walker: Since we first rolled this out at the MBA Annual in October 2016, we have grown quite of bit in terms of the availability of vendors, for any one or more of the validation services. We started with two, and we’ve now grown to 16 vendors who will provide income, employment or asset verification services, plus about another 60 or so resellers of those services.
So, yes, if you are a lender, you can do the component service with any combination of folks who provide that service. If you visit FannieMae.com, you’ll see that there’s a vendor listing of who is providing which services. You can see that FormFree is only doing asset while maybe Equifax is doing all three.
So, you can go out there and work with any combination. But, frankly, we found it was complicated for our customers. Especially when some of these early participants had sort of a “first-mover” advantage – they were able to leverage that into pricing structures that were not necessarily entirely in favor of our customers. So, it’s been really incumbent on us to figure out how to simplify the complexity of having multiple vendors, as well as to simplify how income, employment and asset can be calculated. That’s where we feel Single Source Validation will play an important role.
Single Source Validation is really, at its core, about using the asset statement to get to all three components. Once you get bank statements, you can see the auto deposits, which, in turn, enables you to verify the employer and calculate the income.
Although we have 16 vendors now working with us, currently, only two, Finicity and FormFree, offer a true single-source validation offering.
Q: So does Fannie pick and choose which vendors have the best verification solutions? For example, does it pick one vendor’s asset verification solution but, for some reason, not pick the same vendor’s income solution?
Walker: We have a relationship with the Mortgage Bankers Association, which wants to ensure that we have the broadest coverage possible. What we don’t want to do is force our customers to change their internal workflows or make a strategic decision that is not in keeping with their technology roadmap.
The easiest way to think about it is this: Fannie Mae wants to own the technology relationship with our vendors because we have to mitigate the risk of accepting the rep and warrant – and we accept the rep and warrant on behalf of the vendor, as well. So, we want to manage that technology relationship, from the risk side, and we want our lenders to manage it from the business side. That’s how I think about the role that we play.
So, if there is a third-party service provider that offers each of those services, we will validate each service individually. But we think the model is ultimately going to move to source data, which is much less resource- and paper-intensive. If you can get to the source data, it prevents you from having to go to multiple places [to get the data]. It is also a fraud mitigator.
That’s not saying [a lender] can’t [use multiple providers]. We don’t ever want to be in a position to take away from a customer who says, “I have my 4506T provider over here, and I have employment validation over here, and I have FormFree for just asset verification over here.” That’s fine; we want a lender to be able to do that. But [using source data] brings an option that should streamline all of that pretty significantly.
Q: When you consider that there is so little variability in the data being provided, what is the real advantage, from Fannie Mae’s perspective, in offering so many vendors to choose from?
Walker: In the beginning, there were only a few vendors providing asset verification services. We might have proceeded entirely differently had we known a year ago that source data was the way to go.
For us, it’s solely about, “How do we simplify the transaction – how do we take cost out of the transaction?” and less about how to leverage a particular vendor’s unique value proposition.
Q: Suppose I have existing relationships with one or more verification providers and I decide to sign up for Day One. What changes might that trigger, in terms of my relationships with my existing vendors? Does it require me to re-assess the ones I am using, even if I know they are Fannie Mae approved?
Walker: It depends on the particular service. When I look at Day One Certainty, it is really democratizing the ability for a lender to [deliver] a digital experience for its customers. Not every lender has that as its top priority. But if that is part of your roadmap – if competing with Quicken in your market is important to you – you now have the tools to do it.
But it’s going to be a very different story from lender to lender. Because, up until a year ago, there wasn’t necessarily a good road map, and it was very hard to put all these components together and get some value out of it. For example, some folks were much more familiar with The Work Number than they were with FormFree.
So, again, not to pick winners and losers, I think we have a good mix of solutions out there – and if you think about the loan origination system (LOS) providers – I think there’s a big workflow opportunity for those LOS providers who have embedded some of these [verification services]. So, getting back to which ones a lender chooses, in some cases, the decision will be based on whether it is an Ellie Mae user or a Black Knight user – because Ellie Mae and Black Knight have different automated workflows around vendors “A,” “B” and “C.”
Again, that’s where we say, “We want to manage the risk in the relationship with the vendor – but we don’t want to say who you should use.” That really should be driven by the lender’s business model.
Q: How does Fannie Mae go about validating these providers of verification services?
Walker: It really isn’t too much different from the consumer banking world, which is where I come from. When we wanted to have a relationship with a technology provider, the procurement process was excruciatingly detailed. And because we are rep and warranting the decisions that are being made by a vendor, you might imagine that the system that we put them through is pretty detailed as well.
You’ll find the exact requirements on our site – we’re trying to be very transparent – and we’ve opened it up. It’s very much an open architecture – it’s an open-source environment. We try to keep our thumb off of the scale, and we invite anyone who has a service to follow the uniform process that we outline on how to become a vendor.
As long as they are willing to provide us with the info we need – and as long as they have the security protocols in place – we treat them like a counter-party. So, there is no restriction as to who can offer the service. We certainly do not want to be picking the winners and the losers.
To frame where we are relative to a year ago – and these are public statistics – there are more than 1,000 lenders who are now on board with Fannie Mae’s Day One Certainty Program. And those lenders represent almost 75% of the business that we buy. So, it’s been fascinating to see the adoption rates.
At this point, for us it’s all about making the process simpler and helping lenders in their journey to implement new workflows.
