You may recall back to your very first job, opening your paycheck for the first time and even complaining about how much the government took out in taxes. While this may seem like a distant memory, the truth is that many borrowers still opt to collect a paper paycheck.
But this is soon to be a phenomenon of the past as well considering the vast majority of borrowers now prefer to be paid via direct deposit. According to the National Automated Clearing House Association (NACHA), a recent survey found that 94% of respondents prefer receiving pay through direct deposit.1
However, despite the overwhelming number of consumers that utilize direct deposit to collect their paychecks, most of the real estate and mortgage industry still relies on paper paystubs for documentation and qualification purposes.
This will soon be changing with Freddie Mac’s newly updated asset and income modeler (AIM). Updates to this system will allow the agency to automatically analyze your income by using direct deposits received from your employer.
While not all files will qualify for income representation and warranty relief through this service, nevertheless this new service will offer several distinct advantages as you go through the mortgage application process.
If you are thinking about buying a new home or refinance and collect your paycheck via direct deposit, here’s how you can ditch the paystubs for your next mortgage application.
How Does Direct Deposit Income Verification Work?
The mortgage application process is about to get a little bit easier if you seek a new mortgage that will be backed by government-sponsored entity Freddie Mac. Freddie Mac is now fully integrating direct deposit income verification into their asset and income modeler (AIM) to help streamline the qualification processor for eligible borrowers.
The system relies on a borrower’s bank statements to aggregate and process key data points that are then automatically analyzed to qualify a borrower based on the direct deposits they receive.
In order to utilize the direct deposit income verification feature, your lender will have to already be using Freddie Mac’s AIM system. Additionally, lenders must sign up for separate accounts with one of several third-party direct verification service providers for this specific service. Current providers include Fincity, FormFree, and Pointserv.2
Lenders also benefit from this service by receiving representation and warranty relief for the accuracy of the income being used by the model for qualification.
Freddie Mac has already been using AIM for a few years to analyze income for self-employed borrowers, so it’s no surprise that direct deposit income verification has finally launched for non-self-employed borrowers.
While aggregator Fannie Mae does not currently offer direct deposit income verification, it has kept pace with Freddie Mac by introducing other types of digital offerings including positive rental payment history and employment verifications.
Advantages to Using Direct Deposit Income Verification
There are many benefits to using Freddie Mac’s new direct deposit income verification service. For starters, the new service should help reduce the amount of documentation you need to provide your lender when qualifying for a new mortgage.
Similarly, using this automated service should help reduce errors within your application requiring additional documentation or due diligence. Incorporating automated verifications through third-party service providers also tends to help reduce instances of mortgage fraud.
Additionally, using direct deposit income verification should allow you to get to the closing table much faster. A 2020 study conducted by Freddie Mac found that lenders that leverage the use of automated and digital offerings were able to close files an average of 9-10 days faster than peers who did not utilize these services.3
Real estate and mortgage markets have been slow to transition processes to digital formats, however Freddie Mac’s new direct deposit income verification service is a step in the right direction.
An overwhelming number of U.S. employees already prefer receiving their payroll via direct deposit. This offering would make the mortgage application process much simpler for eligible borrowers.
The new service has been integrated into Freddie Mac’s assets and income modeler (AIM), meaning you can now have your income verified based on payroll direct deposits received through your personal bank account.
Fannie Mae has not come out with its own version of direct deposit income verification; it may not be long before it mirror’s Freddie Mac’s new digital offering.
Overall, direct deposit income verification is advantageous as it can help reduce the upfront documentation that is needed, as well as allowing faster application turnover, meaning you can close faster than ever before.
While lenders get the upside of providing a better consumer experience, as well as representation and warranty relief for income verified through the service, ultimately it’s you who will benefit the most from Freddie Mac’s newest digital offering.
1 Kahn, M. (2020, October 5). Survey Says: Direct Deposit is the Overwhelming Choice. Nacha. Retrieved February 22, 2022, from https://www.nacha.org/news/survey-says-direct-deposit-overwhelming-choice
2 Kromrei, G. (2022, February 18). Freddie Mac rolls out direct deposit income verification. HousingWire. Retrieved February 22, 2022, from https://www.housingwire.com/articles/freddie-mac-rolls-out-direct-deposit-income-verification/#:%7E:text=For%20the%20specific%20capability%20of,offers%20verification%20services%20for%20lenders
3 Freddie Mac. (2020, December). Mortgage Closing Cycle Time – A Benchmark Study. https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/mortgage-cycle-time-benchmark-study.pdf