The FHA and HUD have issued a Mortgagee Letter explaining recent policy changes that affect how borrowers will have their income and employment verified, among other issues.
Mortgagee Letter 19-01, issued February 15, 2019, announces the specific inclusion of third-party vendors (TPV) for the purpose of income and employment verification.
The change is needed, according to the Department of Housing and Urban Development, because FHA home loan rules in HUD 4000.1 did not previously mention third party vendors specifically.
“FHA allows for electronic verifications as an option to a written Verification of Employment but makes no specific reference to TPV services. TPV provides an alternative means for verifying a Borrower’s employment, income, and assets which would eliminate the requirement for a Mortgagee to collect pay stubs, W-2s, and bank statements”.
That’s according to Mortgagee Letter 19-01, which adds that this third party verification system is intended for all FHA forward mortgages under the Title II program (Title I loans are for manufactured housing, Title II loans are for single family homes.
The new rules also apply to FHA Home Equity Conversion Mortgages also known as FHA HECM loans or FHA Reverse Mortgages.
What do the new rules change?
The rules specifically authorize participating FHA lenders to use third party services to verify employment, income, and other data. From the revised HUD 4000.1:
“Third Party Verification refers to a process through which aBorrower’s employment, income, and asset information is verified directly by the Mortgagee with a borrower’s employer or financial institution,through the services of a third party vendor. ” The mortgagee is the lender, and under the new rules, traditional employee verification is now regulated as follows:
The lender is required to obtain the most recent pay stub and either a written Verification of Employment for the last two years of work, OR electronic employment verification by a third party vendor but subject to certain FHA requirements:
- The Borrower has authorized the Mortgagee to verify income and employment;
- The date of the data contained in the completed verification conforms with FHA requirements;
- Re-verification of employment must be completed within 10 Days prior to the date of the Note. Verbal or electronic re-verification of employment is acceptable;
- Electronic re-verification employment data must be current within 30 days of the date of the verification.
We will explore the rule changes in detail in future blog posts. Ask your loan officer how these rule changes may affect your mortgage loan transaction.