In November 2016 Federal National Mortgage Association (FNMA) announced that they would allow their partner lenders to offer Day 1 Certainty (D1 Certainty) for any of their borrowers applying for a Fannie Mae loan. Federal National Mortgage Association depends on the Desktop Underwriter (DU) validation service; a new service that validates the borrower’s assets and income using qualified third-party vendors pre-approved by FNMA. When a lender opts-in to use the DU validation service, the steps that come into play to make sure Fannie Mae issues a D1 Certainty include:
The borrower explicitly provides consent to pull electronic verification and credit data.
The lender orders the reports from a Fannie Mae approved D1 Certainty provider.
The lender submits the completed loan file via DU to Fannie Mae.
Fannie Mae DU automatically validates income, assets, and employment. Desktop Underwriter receives a duplicate copy of the reports from an approved information vendor who cross checks the lender submitted reports to form its own income and asset calculations to arrive at a value to compare with DU. If a discrepancy exists in the calculation or the reports, Fannie Mae issues a notice to the lender identifying the discrepancy, so the lender can resolve it.
Lender closes the loan and delivers it to Fannie Mae and gets the D1 Certainty for income, assets, and/or employment.
Since it does not need re-verification for income, assets, and employment, the lender performs streamlined post-closing quality control (QC) functions on the loan file.
Day 1 Certainty significantly streamlines the origination process for FNMA loans and offers many benefits, for example:
- Borrowers do not have to mail, fax or hand-deliver verification documents if they consent to these items being electronically received by the lender, thus significantly reducing time and effort for the borrower.
- A streamlined underwriting process occurs because verification of key loan data occurred upfront, which guarantees Fannie Mae will not question it later. Lenders can stay focused on clearing exceptions. In addition, they receive certainty of income, assets, and employment information as validated by DU. This releases lenders from the concern of reps and warrants about vendor data integrity and income, or asset calculations.
- It reduces the cost and time required to re-verify assets, income, and/or employment. Additionally, I4506-T requests are not required when the borrower’s income was validated by electronic means.
- Lenders face less fraud risk because they are not relying on paper or electronic copies of verification documents, which can be manipulated by fraudulent borrowers or third parties.
FNMA Day 1 Certainty is a step in the right direction to modernize the mortgage lending process and reduce the time to go from an application to closing by removing a lot of the redundant Verification of Income and Verification of Asset steps. Modern borrowers these days are used to buying everything else from cars to computers using an electronic process through websites and apps. Borrowers also expect hassle-free and streamlined mortgage lending. What is to be seen is whether borrowers will still prefer the hand holding of an account executive to assist them in the purchasing process or prefer to transact with the mortgage bank fully electronically in the future.