On February 15, 2019, the Federal Housing Administration issued some new guidelines for third-party verification of borrower income, employment and assets (for FHA loans). They also issued a new Mortgagee Letter to go along with it, which is summarized below.
Third-Party Verification of Income, Assets & Employment
On February 15, FHA officials issued “Mortgagee Letter (ML) 2019-01: Third Party Verification Services.”
That letter gives mortgage lenders some additional guidance on the use of third-party verification services as an alternative for verifying a borrower’s employment, income, or assets for FHA loan underwriting and approval.
Currently, the official handbook for FHA-insured mortgage loans (HUD Handbook 4000.1) and the Home Equity Conversion Mortgage (HECM) guide state that mortgage lenders can use electronic verifications in lieu of written Verifications of Employment (VOEs). They also permit the use of Verifications of Deposit (VODs) in lieu of bank statements.
But up until now, those official guides offered no specific guidelines regarding the use of third-party verification services to verify borrower income and employment. This new Mortgagee Letter will revise FHA loan documentation as needed to allow for third-party verification of borrower income, employment or assets on FHA loans.
To quote the official announcement:
“This ML revises documentation requirements to allow the use of vendors to verify information directly with borrowers’ employers or financial institutions without the need for additional documentation and is consistent with industry practice.”
Key Requirements from Mortgagee Letter 2019-01
The new guidance regarding third-party verification of FHA borrower employment, income, and assets are outlined in Mortgagee Letter 2019-01. That document was issued in February 2019. You can find it on the HUD website and also on our HUD guidelines page.
Here are the key points from ML 2019-01:
Definition: In the context of FHA loans, “third party verification” is a process in which the mortgage lender (mortgagee) verifies a borrower’s income, employment and asset information through the services of a third-party vendor.
Verification of Employment
In addition to the traditional methods of employment verification (such as a written VOE), lenders can now obtain “direct electronic verification of employment by a third-party vendor covering two years.” Borrowers generally must authorize the Mortgagee to verify income and employment.
Earnest Money Deposits
According to ML 2019-01, mortgage lenders can also use electronic verification through a third-party vendor to verify the borrower’s earnest money deposit. Here again, the borrower must authorize the mortgagee to verify their assets in this manner. Another requirement: “the information shows that the average balance was sufficient to cover the amount of the earnest money deposit at the time of the deposit.”
Checking and Savings Accounts
In addition to the standard methods of verifying these accounts, mortgage lenders can now use direct verification by third-party vendor “covering activity for a minimum of the most recent available month.” Again, the borrower must authorize the mortgagee to verify their assets through a third-party service. Another requirement is that “the date of the data contained in the completed verification is current within 30 days of the date of the verification.”
The provisions and requirements outlined in Mortgagee Letter 2019-01 take effect immediately, as of February 15, 2019. These policy changes will soon be added to the HUD Single Family Housing Policy Handbook (Handbook 4000.1) and the HECM Financial Assessment and Property Charge Guide, as part of a forthcoming update.
Learn more: This is just a basic overview of the FHA loan changes regarding third-party verification of assets, income and employment. To learn more about these new guidelines and requirements, refer to the Mortgagee Letter mentioned above.