In today's mortgage lending landscape, the Verification of Employment (VOE) process holds significant importance for both lenders and borrowers. VOE enables lenders to assess the borrower's financial stability, mitigate risks, and ensure responsible lending practices. By verifying employment details, mortgage lenders can make informed decisions and maintain the integrity of the lending process.

The VOE process is a critical component of the mortgage lending process. It involves verifying the borrower's employment status, income, and other relevant details. This information is essential for lenders to determine the borrower's ability to repay the loan. Without this information, lenders would be unable to assess the borrower's financial stability and would be at risk of lending to individuals who may not be able to repay the loan.

One of the most significant provisions of the mortgage-related law is the Ability-to-Repay rule. This rule, as defined by the Consumer Financial Protection Bureau (CFPB), mandates that creditors must make a reasonable and good-faith determination of a consumer's ability to repay a residential mortgage loan according to its terms.

Lenders and investors were not required to confirm and record a prospective borrower's employment prior to the implementation of this law. However, post-Dodd-Frank, lenders must thoroughly vet borrowers to ensure that they have the capacity to meet their monthly mortgage obligation.

Verifying employment is a crucial step in determining a borrower's creditworthiness, reducing fraud risk, and ensuring that the loan will perform, whether it is retained in the originator's portfolio or sold to an investor. This process helps to protect both the borrower and the lender, ensuring that the mortgage is a sound investment for all parties involved.

Overall, the Ability-to-Repay rule is a critical component of the mortgage industry, providing much-needed protection for consumers and lenders alike. By requiring lenders to thoroughly vet borrowers and verify their employment, this rule helps to ensure that mortgages are a safe and secure investment for all involved.

How does Verification of Employment (VOE) work?

The process of verifying employment can be accomplished through either an in-house or outsourced manual process, or by utilizing an authorized third-party data solutions system. This latter option will be discussed in more detail later.

When a borrower is ready to proceed with a loan, they must provide their lender with their employment history and information, including contact details, as well as supporting employment and income documents such as W-2 forms, pay stubs, bank statements, and other financial documents. Once the loan enters the underwriting stage, processors take more substantive steps to verify the details and information provided, including the borrower's employment situation.

If the lender employs an in-house manual VOE process, a processor will need to contact the HR department of the borrower's employer to confirm the information provided in the application. If the processor gets to the proper person fast, this procedure can be simple and rapid. However, if the phone number provided is incorrect or if the proper HR representative cannot be contacted immediately, the timeline for verification could extend to a week or more. This process requires both a competent processor and a responsive employer.

It is important to note that utilizing an authorized third-party data solutions system can streamline the employment verification process, reducing the potential for delays and errors. This system can quickly and accurately verify employment information, providing lenders with the necessary information to make informed decisions about loan approvals.

When lenders use an in-house method for verifying employment (VOE), they must be aware of several critical risks, including human error and fraud. A busy or negligent processor may neglect the full documentation of the verification required by manual VOE. This can lead to delays or even jeopardize the loan processing. Moreover, manual processes are limited by the work hours of the borrower's employer and the availability of the authorized HR representative. If they are unavailable, it can delay verification, causing further delays in the loan process. This can make it difficult for an unsuspecting underwriter or processor to validate the authenticity of the employer without extensive research, costing more time and money.

However, utilizing an automated or third-party system can streamline the process, making it quick and relatively painless. An outstanding example of using mortgage technology to handle easy chores instead of manpower is a vendor method to executing VOE. This frees up the lender staff to concentrate on more difficult files or address more urgent client issues.

In conclusion, lenders must weigh the risks and benefits of manual VOE versus automated or third-party systems. While manual processes can be vulnerable to human error and fraud, automated systems can streamline the process, making it more efficient and less prone to errors. Ultimately, the choice depends on the lender's priorities and resources.

An essential step in the current mortgage underwriting and loan processing/approval stages is the verification of employment. It is essential to ensure that the process is seamless, cost-effective, and provides managers with the opportunity to maximize the use of employees' time. Therefore, it is crucial to carefully consider how your company designs its processes and whether outsourcing is the best fit.

It is important to remember that verification of employment is now a required part of the mortgage process, thanks to the Dodd-Frank Act. Protecting investors, lenders, and consumers from fraud and excessive risk requires the use of VOE.

By implementing a streamlined and efficient verification process, your company can ensure that it meets all regulatory requirements while also maximizing productivity and minimizing costs. So, take the time to carefully consider your options and design a process that works best for your organization.

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How to Verify Employment: A 5-Step Guide

When it comes to the mortgage application process, verifying employment is a crucial step for lenders. It helps ensure the borrower's financial stability and enables responsible lending practices. In this blog post, we'll guide you through five simple steps to verify employment effectively.

1. Look Up the Business Entity

Start by searching the Secretary of State's office or its equivalent in your state. Check if the person who signed the employment verification letter matches the company's profile. This step helps confirm the legitimacy of the business and the authenticity of the letter.

2. Call the Employer

To validate the employer's signature on the employment verification letter, make a phone call during business hours. Request to speak with the person who signed the letter. If they're unavailable, ask for a call-back or speak to someone who can assist with the verification process.

3. Obtain Past Pay Stubs

Ask the individual to provide their past two pay stubs. These documents offer valuable insight into their income and financial habits. If pay stubs are unavailable, request a bank statement from the previous month, which can demonstrate their financial responsibility.

4. Acquire the Past Two Years of Tax Returns

For self-employed individuals who may receive cash payments, obtaining their tax returns is essential. Request at least two years' worth of income tax returns. These documents serve as proof of income and are readily accessible as everyone is required to file taxes with the federal government.

For Individuals: Request IRS Form W-2

For Self-Employed: Request IRS Form 1040

Additionally, you may ask the individual to submit IRS Form 4506-T, which allows the federal government to verify their income from the previous year. This process is free and usually takes one business day.

5. Run a Credit Report

If the previous steps don't yield satisfactory results, consider running a credit report. Request the necessary information from the individual by using a Background Check Authorization Form. Utilize credit reporting agencies like Equifax, Experian, or Transunion to perform the search and gather insights into the individual's financial history.

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Verifying employment is a critical part of the mortgage lending process. By following these five steps, lenders can ensure the accuracy of the borrower's information, mitigate risks, and make informed decisions. Remember, effective employment verification helps promote responsible lending practices and ensures the overall stability of the mortgage industry.